Takeaways from the Salzburg Global Finance Forum on innovation, regulation, and the social impact of technology in global financial systems
Under the guiding question, "Financial Technology Innovation, Social Impact & Regulation: Do We Need New Paradigms?", participants of the 14th annual session of the Salzburg Global Finance Forum convened from June 16 to 18, 2024, at Schloss Leopoldskron in Salzburg, Austria. Fellows included senior and rising leaders from banks, financial services firms, fintech and technology companies, investment and asset management firms, supervisory and regulatory authorities, and professional service providers.
Over the course of three days, discussions centered on how global financial systems are being reshaped by new forms of financial, monetary, and technology-driven innovation. Fellows examined whether current approaches to regulation and supervision are fit-for-purpose and how we should think about the impact - both social and economic - on society.
Participating Fellows identified a range of new regulatory models, tools, and approaches worthy of exploration. They also discussed how the Salzburg Global Finance Forum can catalyze action to support a global financial system that is stable, sustainable, and supportive of financial inclusion, economic growth, and broad-based prosperity.
The following are seven key takeaways that resulted from the many robust panels, conversations, and debates during the three-day session.
1. Activity-Based vs. Entity-Based Regulation: A False Choice?
In the context of the impact non-bank actors are having on financial services, there was a discussion on whether regulation should shift to be more activities-based rather than entity-based. A significant number of Fellows indicated that this dichotomy is a false choice, as financial regulation is typically both entity-based and activities-based. Some observed that entity-based regulation is primarily focused on prudential considerations, while activities-based regulation largely focuses on consumer protection and related operational safeguards. Many non-banks are subject to forms of entity-based and activities-based regulation across global jurisdictions.
2. Geopolitical Competition: Are We Witnessing Accelerating Fragmentation and Divergent Approaches to New Technologies?
Another key topic was the role of geopolitical competition across markets, payments systems, and emerging financial technologies. Many Fellows agreed that ideological narratives are accelerating market fragmentation, especially between the U.S. and China. Some underscored that aggressive Western use of sanctions drives interest in alternative non-U.S. dollar-based payments systems. Regulation of new technologies is also a nexus of ongoing fragmentation. While the “Brussels Effect” means many jurisdictions will follow EU-established standards, Fellows noted that China is increasingly seeking to create or influence standard-setting bodies. The U.S. remains “exceptional” in its early lead on certain technologies, including AI, but its regulatory policy remains directionless.
3. Regulatory Supervision and Rulebooks: Does Principles-Based Oversight Better Accommodate Fast-Changing Models and Foster a Growth Mindset?
Current regulatory tools are often reactive and not fit-for-purpose, especially the slow-moving process of rulemaking, suggested many Fellows. Some argued that regulators should focus on principles-based supervision and avoid prescriptive rules that can rapidly become outdated. They highlighted the importance of balancing the need for global regulators to grasp emerging technologies and creating latitude for technologies to develop within the regulatory perimeter. Others observed that overly prescriptive or costly regulations can stifle innovation within the banking system. This causes market participants to migrate to more opaque, less regulated mechanisms, potentially amplifying systemic instability.
4. Sandboxes, Standards, and Safe Harbors: Which Modern Regulatory Tools Can Foster Responsible Innovation?
Fellows discussed a range of regulatory tools that can foster responsible financial innovation. Some pointed out the mixed results of sandbox efforts, while others noted that better design allows for constructive public-private collaboration and can ensure viable application from testing grounds to mainstream regulatory recognition. Fellows further suggested that well-recognized standards could underpin regulatory safe harbors and help keep pace with new technologies, including AI.
5. Advances in AI: Are New Paradigms Required?
While most agreed on the importance of monitoring for new risks, Fellows suggested that existing regulatory and risk management frameworks are capable of mitigating risks related to AI technologies. They noted the potential of AI in financial services, including generative AI, to improve product delivery. Many cited active exploration of applications across customer service that counter fraud and enhance cybersecurity. They also observed AI’s role in mitigating costly climate events while recognizing its high energy consumption. Many Fellows expressed concern that data privacy regulations could potentially create new barriers and stymie efforts to increase access and inclusion for disadvantaged or underbanked populations.
6. Modernizing Payments Systems: What Is the Proper Role for the Public and Private Sectors?
A number of Fellows shared the view that in some global jurisdictions and emerging markets, government-backed payment rails may be appropriate as the primary infrastructure, given a lack of private alternatives. However, in highly developed markets, private sector solutions already provide cutting-edge payment systems and therefore do not require extensive public sector intervention. They further discussed the role of non-bank payment firms in modernizing national payments systems, with some Fellows calling for direct non-bank access to Federal Reserve payments systems in the U.S.
7. Digitization of Money: CBDCs, Stablecoins, and the Rise of Web3?
Fellows highlighted opportunities for central bank digital currencies (CBDCs), particularly in environments where access to banks and financial products is limited. CBDCs could provide banking solutions in countries with insufficient technology infrastructure, but would require significant guardrails circumscribing government access to personal data. Fellows also noted that private-sector solutions, such as fiat-backed stablecoins, can solve many of the same problems as CBDCs.
Discussions throughout the Finance Forum highlighted a rapidly changing global financial system and deepening fault lines. The next session, planned for June 16 to 18, 2025, will accordingly be titled “Fragmentation and Realignment in the Global Financial System”. Fellows will explore what the rise of competing financial architectures and infrastructures (e.g., payment systems) means for economic policy, economic regulatory bodies, and innovation. Other topics include: How have the global 2024 election outcomes changed the global financial system? What is the role of multilateral institutions in the age of populist economic policy? What are the opportunities and perils presented by the shift in global economic structures?
To learn more about the Sazburg Global Finance Forum, please visit here.
