Behemoth technology firms such as Alibaba, Amazon, Facebook, Google and Tencent moving into financial services could well make the sector more efficient, but also introduces new risks, which need new regulatory approaches, the Bank for International Settlements (BIS) writes in its Annual Economic Report.
In a separate chapter focused on big tech in finance, the BIS notes that the above-named companies offer many potential benefits, including enhanced efficiency of financial services provision and facilitating financial inclusion. But this positive comes with a big warning: the entry into finance of big technology firms introduces new and additional risk into the system.
Some challenges are traditional ones – such as financial stability and consumer protection, albeit in new, modernized forms – but a fundamentally new issue is big tech’s access to data from its existing platforms. This could spark rapid change in the financial system through the emergence of dominant players that could well reduce competition, warns the BIS.
And the role of big tech firms in finance raises issues well beyond financial risks, adds the BIS. Such a scenario means striking a balance between financial stability, competition and data protection, it notes, with regulators extending their remit and ensuring a level playing field exists – taking into account big tech’s wide customer base and specific business models.
‘The aim should be to respond to big tech’s entry into financial services so as to benefit from the gains while limiting the risks,’ says Hyun Song Shin, economic adviser and head of research at the BIS, in a statement. ‘Public policy needs to build on a more comprehensive approach that draws on financial regulation, competition policy and data privacy regulation.’
Therefore, as big tech accelerates its move into financial services, expanding beyond current regulatory perimeters and geographical borders, policy-makers will need major new institutional mechanisms to help them work and learn together, notes the BIS. ‘Co-ordination among authorities – national and international – is crucial to sharpening and expanding their regulatory tools,’ notes the report.
