Overcoming Barriers and Risks

The Task Force identified as series of critical barriers and risks to harnessing digital financing for the sustainable development goals. The following tables illustrate how the recommendations in the Action Agenda address these systemic obstacles and challenges.

Barriers

 

 

Barriers	How existing barriers are approached in the recommendations
Access to digital financial services: 750 million people lack broadband connectivity, 1 billion lack formal IDs	Accelerating citizen-centric inclusive digital foundations that advance connectivity, access to digital IDs, interoperable systems and adequately governed data markets, particularly leveraging COVID-19 stimulus packages, addresses the main barriers to digital financing of the SDGs.Furthermore, progressing incentives and institutional arrangements in support of digital financing ecosystem development will likely drive market and product innovations that serve citizens’ needs and interests, potentially enhancing citizen participation in digital financing of the SDGs.
Access to data is critical for financial decision-making and digital financing innovation
Siloed and non-interoperable IT systems hinder use of data to price risk, describe impacts and underpin accountability
Access to appropriate digital financial services: lack of affordable, secure, relevant digital financial services
Demand-side inadequate digital and/or financial capabilities, including illiteracy and poverty and social norms, undermine demand and usage	Empowering citizens, individually and collectively, in securing rights and capabilities by advancing digital financial literacy programs, access to information, increased transparency, including addressing barriers for specific groups such as women and older people, can drive greater usage of digital finance and citizen involvement in financing decisions.
Supply-side talent shortage hinders digital financing innovation, particularly in less developed countries	Regional approaches to the development of digital financing ecosystems combined with robust governance approaches to oversight of global digital financing platform will stimulate regional cooperation and private sector partnerships which facilitate local talent development and knowledge exchange.
Weak regulatory capabilities undermine the establishment of enabling policy and regulatory environment for digital financing innovation	International cooperation in governance and policy dialogue, as well as development of domestic regulatory sandboxes and other tools will build regulatory capabilities.
Incumbent resistance to disruption, disintermediation, and digitally-enabled transparency of their activities and rewards	Deliberate pursuit of catalytic opportunities will result in increased disruption, disintermediation and transparency as ensuing digital innovations emerge. Strengthened by adequate regulatory approaches, the potential is there to establish new norms and practices that may lead to overcoming incumbent resistance.

Barriers
Access to digital financial services: 750 million people lack broadband connectivity, 1 billion lack formal IDs	Access to data is critical for financial decision-making and digital financing innovation	Siloed and non-interoperable IT systems hinder use of data to price risk, describe impacts and underpin accountability	Access to appropriate digital financial services: lack of affordable, secure, relevant digital financial services	Demand-side inadequate digital and/or financial capabilities, including illiteracy and poverty and social norms, undermine demand and usage	Supply-side talent shortage hinders digital financing innovation, particularly in less developed countries	Weak regulatory capabilities undermine the establishment of enabling policy and regulatory environment for digital financing innovation	Incumbent resistance to disruption, disintermediation, and digitally-enabled transparency of their activities and rewards
How existing barriers are approached in the recommendations
Accelerating citizen-centric inclusive digital foundations that advance connectivity, access to digital IDs, interoperable systems and adequately governed data markets, particularly leveraging COVID-19 stimulus packages, addresses the main barriers to digital financing of the SDGs.Furthermore, progressing incentives and institutional arrangements in support of digital financing ecosystem development will likely drive market and product innovations that serve citizens’ needs and interests, potentially enhancing citizen participation in digital financing of the SDGs.	Empowering citizens, individually and collectively, in securing rights and capabilities by advancing digital financial literacy programs, access to information, increased transparency, including addressing barriers for specific groups such as women and older people, can drive greater usage of digital finance and citizen involvement in financing decisions.	Regional approaches to the development of digital financing ecosystems combined with robust governance approaches to oversight of global digital financing platform will stimulate regional cooperation and private sector partnerships which facilitate local talent development and knowledge exchange.	International cooperation in governance and policy dialogue, as well as development of domestic regulatory sandboxes and other tools will build regulatory capabilities.	Deliberate pursuit of catalytic opportunities will result in increased disruption, disintermediation and transparency as ensuing digital innovations emerge. Strengthened by adequate regulatory approaches, the potential is there to establish new norms and practices that may lead to overcoming incumbent resistance.

 

Risks

 

 

Risks	How potential risks are approached in the recommendations
Data security and privacy risks are amplified as digital financing relies on growing volumes of (personal) data and a handful of IT providers	Securing rights and capabilities of citizens by advancing citizen awareness and knowledge building programs, but also ensuring adequate consumer protection mechanisms and enhanced supervisory practices will contribute to reducing fraud and building trust. Specific attention to data management and data governance, core to the development of robust digital foundations, will help mitigate data privacy and monopolization risks. Some of these risks will be best addressed by the pursuit of catalytic opportunities, which will drive innovation and the development of the required rules and governance arrangements.
New fraud and money laundering, for example on digital marketplaces, cryptocurrency exchanges, crowdfunding platforms
Irresponsible digital financial products with opaque or misleading terms and conditions and insufficient recourse measures
Data monopolization or exploitative use of data can stifle future digital financing innovation and undermine consumer trust	In addition to the above, addressing data monopolization may also be achieved by advancing corporate governance innovations and fostering international cooperation on data governance issues. In particular, empowering developing nations to have a say in the governance of global digital financing platforms originating from outside of their jurisdiction will help mitigate adverse effects of such platforms, such as data monopolization.
Cybersecurity creates user and systemic risk in digital financial services as providers resort to cloud infrastructure providers	Advancing international cooperation on the governance of digital finance and in particular BigTech players will help advance solutions to addressing systemic risks caused by these platforms. This would be strengthened by embracing relevant global standards and practices that facilitate information exchange on threats.
Unfair treatment can arise from discriminatory algorithms based on biased data or hyper-personalization of financial services	Development of local regulatory and supervisory capabilities in shaping digital financing ecosystems and addressing the new challenges brought by digitalization is an essential part of advancing digital financing ecosystems. This can be eased by promoting sandboxes and other regulatory and supervisory technology (RegTech / SupTech) solutions that will be essential in mitigating such risks as algorithmic biases.
Short-termism, volatility trading and herd behaviour has grown with digitalization and algorithmic trading	Catalytic opportunities indirectly alleviate this specific risk by repurposing and redirecting significant financial flows towards long-term, sustainable investments. The emergence of new norms and practices stemming from systematically aligning digital finance ecosystems with sustainable development priorities will further decrease short-termism. The advancement of stress-testing standards and mandatory disclosures might further contain such risks.
Market concentration and rent-taking derives from ever increasing returns to scale and growing complexity and opacity	The pursuit of catalytic opportunities will drive innovation and undermine rent-taking. Market concentration issues can be addressed through adequate governance arrangements, resulting from greater international cooperation on such governance issues or concerted governance and regulatory approaches among local regulators from different domains.

The pursuit of catalytic opportunities will drive innovation and undermine rent-taking. Market concentration issues can be addressed through adequate governance arrangements, resulting from greater international cooperation on such governance issues or concerted governance and regulatory approaches among local regulators from different domains.

Risks
Data security and privacy risks are amplified as digital financing relies on growing volumes of (personal) data and a handful of IT providers	New fraud and money laundering, for example on digital marketplaces, cryptocurrency exchanges, crowdfunding platforms	Irresponsible digital financial products with opaque or misleading terms and conditions and insufficient recourse measures	Data monopolization or exploitative use of data can stifle future digital financing innovation and undermine consumer trust	Cybersecurity creates user and systemic risk in digital financial services as providers resort to cloud infrastructure providers	Unfair treatment can arise from discriminatory algorithms based on biased data or hyper-personalization of financial services	Short-termism, volatility trading and herd behaviour has grown with digitalization and algorithmic trading	Market concentration and rent-taking derives from ever increasing returns to scale and growing complexity and opacity
How potential risks are approached in the recommendations
Securing rights and capabilities of citizens by advancing citizen awareness and knowledge building programs, but also ensuring adequate consumer protection mechanisms and enhanced supervisory practices will contribute to reducing fraud and building trust. Specific attention to data management and data governance, core to the development of robust digital foundations, will help mitigate data privacy and monopolization risks. Some of these risks will be best addressed by the pursuit of catalytic opportunities, which will drive innovation and the development of the required rules and governance arrangements.	In addition to the above, addressing data monopolization may also be achieved by advancing corporate governance innovations and fostering international cooperation on data governance issues. In particular, empowering developing nations to have a say in the governance of global digital financing platforms originating from outside of their jurisdiction will help mitigate adverse effects of such platforms, such as data monopolization.	Advancing international cooperation on the governance of digital finance and in particular BigTech players will help advance solutions to addressing systemic risks caused by these platforms. This would be strengthened by embracing relevant global standards and practices that facilitate information exchange on threats.	Development of local regulatory and supervisory capabilities in shaping digital financing ecosystems and addressing the new challenges brought by digitalization is an essential part of advancing digital financing ecosystems. This can be eased by promoting sandboxes and other regulatory and supervisory technology (RegTech / SupTech) solutions that will be essential in mitigating such risks as algorithmic biases.	Catalytic opportunities indirectly alleviate this specific risk by repurposing and redirecting significant financial flows towards long-term, sustainable investments. The emergence of new norms and practices stemming from systematically aligning digital finance ecosystems with sustainable development priorities will further decrease short-termism. The advancement of stress-testing standards and mandatory disclosures might further contain such risks.