DFS Regulation & Supervision

Effective regulation and supervision are essential to ensure that benefits of financial sector innovation are realized, and at the same time, DFS providers identify, manage and mitigate risks in line with key regulatory objectives.

This section discusses key considerations for authorities as they set up their approach to DFS regulation.

Risk-based supervision is the key to supervisors achieving statutory policy goals, assuming that resources, capacity, and skills are limited. The RBS methodology allocates supervisory attention and time (i.e., intensity of supervisory activities and enforcement measures) according to a systematic evaluation and risk prioritization. The intent is to rationalize efforts to achieve greater effectiveness and efficiency. This makes it easier for supervisors to strike a balance among the policy objectives of financial inclusion, stability, integrity, competition, and consumer protection.

DFS supervision is in an ongoing cycle of assessing risks, taking supervisory measures, and following up on them, providing feedback to adjust the supervisory approach and regulations, and the planning for the next year. The supervisory cycle illustrated below may be documented in the form of a supervisory framework.

As DFS providers adopt business, governance or shareholding models that blur the lines of different economic sectors and the traditional divisions within the financial sector, DFS supervision increasingly requires inter-agency coordination, particularly to avoid overlaps and gaps in supervisory mandates and perimeter. Inter-agency coordination is also important in cases where policy goals such as financial integrity, consumer protection, competition, and data protection are pursued by different authorities.