Featured Product

    GM of BIS Examines Regulatory Implications of Big Tech in Finance

    December 05, 2018

    Agustín Carstens, the General Manager (GM) of BIS, during the keynote address at the FT Banking Summit in London, spoke about new challenges and policy implications of big tech in finance. He examined the trends and potential drivers of big tech activities in financial services worldwide, also analyzing the possible effects of big tech on financial intermediation and the new conceptual and practical challenges that big tech poses for regulators.

    Mr. Carstens describes big tech firms as the large technology companies that are entering into the financial services arena. Big data is at the core of their business and this gives big tech firms the edge over competitors. The firms can exploit existing customer networks and the massive quantities of data generated by their business lines. Credit decisions of big tech firms are based on predictive algorithms and machine learning techniques while traditional banks commonly rely more on human judgment to approve or reject credit applications. However, to public policymakers, this aspect represents one of the greatest challenges. Big tech firms may improve competition and financial inclusion, put welcome pressure on incumbent financial institutions to innovate, and boost the overall efficiency of financial services. However, such firms may increase market concentration and give rise to new risks, including systemic risks due to the way they interact with the broader financial system. It is, therefore, important to understand how big tech firms fit within the current regulatory framework and how regulation should be organized.

    With respect to the public policy implications and risks from the expanding role of big techs in finance, Mr. Carstens highlights that public authorities have these risks on their radar and have taken steps to address them. For instance, in China (where the big tech firms are most active), PBC and CSRC have introduced a cap on instant redemptions on money market funds. They have also increased disclosure obligations to avoid misleading forms of advertising. Additionally, PBC has recently adopted reforms for big tech firms in payments, dealing with reserve requirements and central clearing requirements. First, from January 2019, PBC will require big tech firms to keep a 100% reserve requirement on the custodial accounts. Second, since June 2018, big tech firms have had to channel payments through an authorized clearing house. The establishment of a two-tier clearing system improves transparency in the Chinese payment system and allows PBC to monitor customer funds on third-party payment platforms. GM of BIS also added that if big tech entry is driven primarily by market power, relying on exploiting regulatory loopholes and the bandwagon effects of network externalities, this could encourage banks into new forms of risk-taking. The public policy solution would be to close the regulatory loopholes. 

    Another challenge is that big tech developments raise issues that go beyond the scope of prudential supervision. Cyber-threats challenge global regulators. A big tech firm that provides third-party services to many financial institutions—whether data storage, transmission or analytics—could pose a systemic risk if there is an operational failure or a cyber-attack. Overall, regulators must provide a secure and level playing field for all participants, incumbents, and new entrants. Firms providing similar services or taking similar risks cannot operate under different regulatory regimes, as this would create regulatory gaps. Mr. Carstens concludes: "Authorities worldwide have a joint interest in an open and frank discussion of public policy goals and responses and they must work together both to harness the promise of big tech and to manage its risks. Global safety and soundness will benefit from more cooperation between supervisors and more information-sharing, especially as big tech firms operate across national borders. As in most financial regulation, international coordination is the name of the game."

     

    Related Link: Speech

    Keywords: International, Banking, Regtech, Big Tech, Big Data, Systemic Risk, Cyber Risk, BIS

    Related Articles
    News

    APRA Decides to Standardize Submission Date for Quarterly Reporting

    APRA announced the standardization of quarterly reporting due dates for authorized deposit-taking institutions.

    May 11, 2021 WebPage Regulatory News
    News

    EBA Publishes Phase 1 of Reporting Framework 3.1

    EBA published the phase 1 of its reporting framework 3.1, with the technical package covering the new reporting requirements for investment firms (under the implementing technical standards on investment firms reporting).

    May 10, 2021 WebPage Regulatory News
    News

    UK Government to Set Out Rules on Wind-down of Critical Benchmarks

    HM Treasury notified that, after considering all responses, the government intends to bring forward further legislation, when the Parliamentary time allows, to address issues identified in the consultation on supporting the wind-down of critical benchmarks.

    May 07, 2021 WebPage Regulatory News
    News

    EIOPA Launches Stress Test for Insurance Sector in EU

    EIOPA launched the 2021 stress test for the insurance sector in EU.

    May 07, 2021 WebPage Regulatory News
    News

    UK Authorities Publish Third Edition of Regulatory Initiatives Grid

    UK authorities jointly published the third edition of Regulatory Initiatives Grid setting out the planned regulatory initiatives for the next 24 months.

    May 07, 2021 WebPage Regulatory News
    News

    EC Consults on Regulation on Non-Financial Sustainability Disclosures

    EC is requesting feedback on the proposed Commission Delegated Regulation on the content, methodology, and presentation of information that large financial and non-financial undertakings should disclose about their environmentally sustainable economic activities under the Taxonomy Regulation.

    May 07, 2021 WebPage Regulatory News
    News

    OSFI Outlines Prudential Policy Priorities for Coming Months

    OSFI has set out the near-term priorities for federally regulated financial institutions and federally regulated private pension plans for the coming months until March 31, 2022.

    May 06, 2021 WebPage Regulatory News
    News

    BIS Announces TechSprint on Innovative Green Finance Solutions

    Under the Italian G20 Presidency, BIS Innovation Hub and the Italian central bank BDI launched the second edition of the G20 TechSprint on the lookout for innovative solutions to resolve operational problems in green and sustainable finance.

    May 06, 2021 WebPage Regulatory News
    News

    ACPR Publishes Version 1.0.0 of RUBA Taxonomy

    ACPR published Version 1.0.0 of the RUBA taxonomy, which will come into force from the decree of January 31, 2022.

    May 06, 2021 WebPage Regulatory News
    News

    EBA Proposed Regulatory Standards for Central Database on AML/CFT

    EBA proposed the regulatory technical standards on a central database on anti-money laundering and countering the financing of terrorism (AML/CFT) in EU.

    May 06, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6944