Regulatory policy must evolve to deal with Big Techs in finance - BIS

Regulatory policy must evolve to deal with Big Techs in finance - BIS

The vast customer data troves of the Big Tech firms challenges traditional approaches to competition policy and the maintenance of financial stability, according to the Bank for International Settlements.

The entry of large technology firms such as Alibaba, Amazon, Facebook, Google and Tencent into financial services, including payments, savings and credit, could make the sector more efficient and increase access to these services, but also introduces new risks, says the central bankers' bank.

Some are old issues of financial stability and consumer protection in new settings, but a new element is Big Techs' access to data from their existing platforms. This could spark "rapid change in the financial system through the emergence of dominant players that could ultimately reduce competition".

The issues raised go beyond traditional financial risks, according to the BIS. Tackling these requires striking a balance between financial stability, competition and data protection.

As Big Techs' move into financial services accelerates - expanding beyond regulatory perimeters and geographical borders - policymakers will need institutional mechanisms to help them work and learn together, says says Hyun Song Shin, cconomic adviser and head of research at the BIS

"The aim should be to respond to Big Techs' entry into financial services so as to benefit from the gains while limiting the risks," he says. "Public policy needs to build on a more comprehensive approach that draws on financial regulation, competition policy and data privacy regulation."

Comments: (2)

A Finextra member
A Finextra member 24 June, 2019, 10:29Be the first to give this comment the thumbs up 0 likes

This is very true. The entry of the Big techs will surely bring about a revolution in the way payments and banking is done and should provide more opportunities and options for the end customers. But at the same time we should be careful that the data domination is not exploited unfairly thereby reducing competition in the long run. These are interesting times in the financial services sector

Christopher Williams
Christopher Williams - RTpay - Winchester Uk 24 June, 2019, 12:43Be the first to give this comment the thumbs up 0 likes

The concern of regulators is mainly regarding KYC and AML, leading to tax evasion and lack of control of money supply. There are issues to be faced, particularly in countries where the black economy is paramount and the fiat currency is frequently being devalued.

But there ways to address each of these matters, too long to go into here.

What I believe should be appreciated is the enormous good that can be done for often the poorest in the country, i.e. those relying on remittances from abroad or aid from charitable organizations.

Being able to cut the costs of such transfers, primarily using Libra (or other new 'currencies') to virtually zero - from an average of 7% - i.e. $70 billion extra value on the $1 trillion pa market - is only part of the value for the recipient government.     

The added value is the improvement in GDP and, from that, the better credit rating - leading to lower financing costs on international debt.

Note that while the recorded amount of international remittances is currently closer to $600 billion, this excludes the hidden Hawala-style payments; these can be even higher than the official ones in some countries. A structure where the price is down to almost zero will, we believe, bring across much of this business. It will, therefore, in turn help goverments disrupt the remaining criminal activity, for a benefit and improvement in the very areas it is concerned about above, i.e. AML and tax fraud.

So, while there is much to be done, hopefully regulators and governments will look at the overall potential for good, not just the risks involved.