Regulatory Coordination Needed to Mitigate BigTech Risks: BIS

An element of risk is BigTechs’ access to data from existing social media, search engines and ecommerce platforms, which raises competition and data privacy issues.

The BIS (Bank for International Settlements) on Sunday (23 June) published a chapter on BigTechs in finance from its Annual Economic Report.

It notes that the entry of large technology firms (so-called ‘BigTechs’) such as Alibaba, Amazon, Facebook, Google and Tencent into financial services could make the sector more efficient and increase access to these services.

These companies offer many potential benefits, including enhanced efficiency of financial services provision, facilitating financial inclusion and promoting associated gains in economic activity, the BIS says.

However, the chapter says, BigTechs could also introduce new risks. Some of these risks are “old issues” of financial stability and consumer protection, but a new element is BigTechs’ access to data from their existing social media, search engines and ecommerce platforms, which put them at an immediate advantage over fintech firms and banks.

The BIS says this could spark rapid change in the financial system through the emergence of dominant players that could ultimately reduce competition, while also raising data privacy and other issues that “go beyond traditional financial risks”.

The warning from the BIS came only days after Facebook announced it would launch its own digital currency, known as Libra, in 2020.

The BIS says regulators need to ensure a level playing field, taking into account BigTechs’ wide customer bases and particular business models. Coordination among authorities – both national and international – will be crucial to sharpening and expanding their regulatory tools.

According to BIS economic adviser and head of research Hyun Song Shin, the aim should be to respond to BigTechs’ entry into financial services so as to benefit from the gains while limiting the risks. “Public policy needs to build on a more comprehensive approach that draws on financial regulation, competition policy and data privacy regulation,” he said.

The special chapter, available here, echoed similar findings to a February report from the FSB (Financial Stability Board) on fintech market developments and their potential implications for financial stability.

The FSB said the competitive impact of BigTech will be greater than from fintech firms due to their already large and established customer networks, name recognition, strong financial positions and access to low-cost capital.

BigTech firms could achieve scale very quickly in financial services, with cross-subsidisation allowing them to operate with lower margins while they gain greater market share. Their participation may not result in a more competitive market over the longer term, it said.

The BIS’ full Annual Economic Report is due to be released on 30 June. 

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