Defining a suitable regulatory response to the appearance of Big Tech in the financial sector is "one of the greatest public policy challenges facing regulatory bodies", says BBVA in a report which calls on financial watchdogs to address the imbalance on data access between banks and firms such as Google, Amazon and Facebook.
The report, prepared by BBVA’s Digital Regulation group and published by the the University of Deusto’s ‘Bulletin of Economic Studies', argues that the regulatory response to the arrival of Big Tech in finance should be aligned to the inherent systemic risks as well as with data protection, trans-border and competitive regulation.
BBVA’s head of digital regulation, Pablo Urbiola, explains that “the post-pandemic economy will be more digital than ever, and so the regulatory response will be as important as ever".
As the BBVA report points out, Big Tech companies can reach massive scale very quickly in new lines of business because their digital ecosystems already have millions of active users. Second, they have a powerful capacity to create and control adjacent markets. Third, they have access to large amounts of data and are unmatched in their ability to analyse it.
The report also suggests that the current regulatory environment might even act as a catalyst for Big Tech’s forays into financial services. Such is the case with open banking frameworks, which allow new competitors to have access to banking’s customer data, as well as initiating payments in their name.
"Financial companies are obliged to provide easy, standard access to payment data, but the data in other sectors is not available on like-for-like terms," the report points out. "This places the financial sector at a disadvantage when providing digital financial services, and bolsters Big Tech’s data advantage."
The authors stress that the main risk arises when these activities are conducted on a much larger scale than initially anticipated. Financial stability risks could emerge should Big Tech firms secure a dominant position in segments like payments and loans, transforming themselves into systemic players in the delivery of services that are critical to the economy.
The report stresses that the approach to regulation needs to shift from being institution-based to activity-based, and to also address the systemic magnitude of Big Tech.
"Regulatory authorities should weigh whether a response to the financial risks associated with the systemic potential of Big Tech is required," the authors write. "Additionally, authorities should assess if the new Big Tech services, to the degree that they become critical to the global financial system, fall subject to existing standards for the infrastructure deemed critical for financial markets."