Keynote Speech

Naoyuki IwashitaKyoto University | School of Government

TF2-TF7 Joint Panel Discussion

Fintech : Building the Future of Financial Systems / Promoting Digital Financial Literacy for the Digital Age

26 May 2019

•T20 Summit 2019

I. FinTech and Financial Inclusion

2

3Source: The World Bank

% of account holders (age 15+) 2011, 2014, and 2017

Kenya42→75→82

India35→53→80

China64→79→80

Brazil56→68→70

South Africa54→70→69

2011

2014

Remarkable Progress of Financial Inclusion

2017Russia

48→67→75

4Source: The World Bank

Kenya42→75→82

India35→53→80

China64→79→80

Brazil56→68→70

South Africa54→70→69

2017 Russia48→67→75

% of account holders (age 15+)

FinTech is disruptive innovation of financial services by the Internet

Reinventing banking business..

Ant Financial is now worth more than Goldman Sachs, Morgan Stanley or Amex.

199205

212220

229237

244254

Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 Q3-18

Mobile payment platform with

>870million* active users

globally

Source: The 2018 Annual Report, Alibaba Group

PayPal active accounts(in millions)

More than a half of market share in

$15.5bn payments market

in China

Source: PayPal 5

FinTech innovation and evolution:a third phase is underway

Source: PwC analysis

Phase 3Phase 2Phase 1

Characterized by new disruptive models and a front-end overhaul of financial services

2013 2014 2015 2016 2017 2018 2019

Phase 3

$100M

$250M

$325M

$275M

$1,000M

$3.7B

$7.9B

$14.7B$13.8B

$16.5B6% CAGR

Partnership approach as FinTechs struggle with acquisition and incumbents shift focus

from regulatory to innovation

Ven

ture

fund

ing

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Proposal

1. G20 should lead on developing principals in policy and regulation to ensure an adequate level of cybersecurityand data privacy while encouraging innovation.

2. G20 should promote to update the regulatory structures to sustain “trust” in the future of global financial systems.

3. G20 should champion a coordinated effort by governments to support in improving financial inclusionthrough bridging technology, innovation, and policies.

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II. Regulation of Crypto-assets

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Source: coinmarketcap.com

Price and Trade Volume of Bitcoin (2017～2019)$ 20,000ド

$ 15,000

$ 10,000

$ 5,000

0

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Pros /Cons of on-chain and off-chain transactionType On-chain Transaction Off-chain Transaction

In brief

Transaction method that has been used since the dawn of Bitcoin. A digital signature is generated with a secret key managed by the user himself, and a transaction record including his own address is recorded on the blockchain.

Transaction method whose settlement completes within the RDB of a crypto-asset exchange. Users authenticate with ID and password, instead of a secret key.

Who use it?

Geeks who have been using Bitcoin from its dawn,

Users who want anonymous transactions, Users who remit or pay across borders, Inter-exchange transactions, Mining companies.

Individual investors who are laypersons about crypto-asset transactions,

Customers of crypto-asset exchanges.

Pros

Transactions recorded on the blockchain are immutable.

Transactions can be almost anonymous. Even if there are troubles in the

exchange, the crypto-assets recorded on the blockchain are safe.

Nontechnical investors can make transactions with simple authentication such as passwords, and their crypto-assets are at no risk of loss or leakage of secret keys.

Cons

Each user needs to be technologically skilled in managing his secret key of the digital signature securely.

Loss or unauthorized use of user's secret key would result in the total loss of his crypto-assets.

Risk of losing crypto-assets if a cyber-attack damages an exchange.

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Major cyber-attack incidents to crypto-asset exchanges

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Attacked Exchange

Nationality Month / Year Estimated Loss($ in millions)

Stolen crypto-assets

Mt.GOX(1) Japan June, 2011 9 -Bitfloor U.S. September,2012 0.25 24,000 BTCMt.GOX(2) Japan February, 2014 480 850,000 BTCPoloniex U.S. March, 2014 0.55 -BitStamp U.K. January,2015 5 19,000 BTCBitfinex Hong Kong August, 2016 66 119,756 BTCCoinCheck Japan January, 2018 530 526,300,010XEMBitGrail Italia February, 2018 170 1,700 XRBCoinrail Korea June, 2018 40 NXPS,ATC,NPERBithumb Korea June, 2018 31 XRP ?Zaif Japan September, 2018 62 BTC,MONA,BCHCryptopia New Zeeland January, 2019 3 ETH ?QuadrigaCX Canada January, 2019 137 inaccessible cold wallets

Bitcoin Mining and Global Environmental Problem

(Source) bitcoinenergyconsumption.com 12

Bitcoin Energy Consumption Index

TWh

per Y

ear

TWh

per Y

ear

58.2 59.4 62.1 62.1 67.3 71.7 72.0

Proposal

1. G20 countries should comply with FATF guidance on AML / CFT of crypto-asset and introduce the regulation to the crypto-asset exchanges.

2. G20 countries should supervise crypto-asset exchanges to manage their risk appropriately, including cybercrime risk from the viewpoint of investor protection.

Japan has already introduced the regulation to crypto-asset exchanges, investing a lot of human resources, conducted on-site inspections. The experiences of Japan's FSA would be valuable for G20 countries.

3. G20 countries should carefully monitor the prices of crypto-assets and mining business if they have an impact on the global environmental problem.

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Thank you.

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