The Bank of International Settlements (BIS) published a paper that assesses the ways in which platform-based business models can affect financial inclusion, competition, financial stability and consumer protection. The study reveals the tendency of digital platforms to dominate specific markets, also highlighting that platforms have helped to achieve impressive gains in financial inclusion, both in emerging market and developing economies and in advanced economies such as the United Kingdom. However, regardless of the approach chosen, coordination by central banks and financial regulators with competition and data protection authorities is warranted.
The paper notes that the three types of digital platforms are expanding in financial services: fintech entrants, big tech firms, and, increasingly, incumbent financial institutions with platform-based business models. These platforms can dramatically lower costs and, thus, aid financial inclusion; however these same features can give rise to digital monopolies and oligopolies. The paper examines models of fintech credit, which is lending facilitated by electronic (online) platforms that are not operated by commercial banks, and big tech credit, which is credit extended or facilitated by large companies whose primary activity is digital services. Among the emerging markets and developing economies, lending by big tech platforms is particularly relevant in China, Kenya, Indonesia, and Russia. In China, digital platforms have enabled dramatic bounds in financial inclusion, with support from public policy and regulation. In lending, empirical evidence suggests that big tech lending has helped to overcome local credit supply frictions and increase credit access for small firms. In late 2020, proposed guidelines by the China State Administration for Market Regulation and China Banking and Insurance Regulatory Commission (CBIRC) set out measures to limit monopoly risks and increase retention requirements for lending. Also, in late 2020, in response to the growth of an “originate-to-distribute” model by big tech platforms, CBIRC adapted rules on online lending and introduced a 30% retention requirement on new loans.
Many regulatory initiatives relating to platforms in finance explicitly require data portability. Open banking requirements in , for example, the EU, UK, India, and South Africa allow users to port their financial data between banks and non-bank (platform) providers. These initiatives can allow for greater user control over personal data and for greater competition between providers. However, the data portability must be carefully assessed against the risks to the privacy of users. Some have argued that fintech credit and other forms of crowdfunding can play an important role in financial inclusion if an enabling and safe environment is in place. Thus, forward-thinking policies are needed to ensure that innovation actually benefits financial inclusion and to protect a competitive environment that protects consumers, while supporting financial stability and financial integrity. To reap the benefits of platforms while mitigating risks, policy makers can apply existing financial, antitrust and privacy regulations; adapt old and adopt new regulations, combining an activity and entity-based approach; and/or provide new public infra structures. The infrastructures include digital identity, retail fast payment systems, and central bank digital currencies. These public infrastructures, as well as ex ante competition rules and data portability, are particularly promising. Yet, to achieve their policy goals, central banks and financial regulators need to coordinate with competition and data protection authorities.
Keywords: International, Banking, Platform Businesses, Lending, Fintech, Regtech, Open Banking, Data Privacy, Financial Stability, Financial Inclusion, Data Protection, BIS
Previous ArticleCFRF Publishes Guides to Manage Financial Risks from Climate Change
The European Commission (EC) published the Delegated Regulation 2022/25, which supplements the Investment Firms Regulation (IFR or Regulation 2019/2033) with respect to the regulatory technical standards specifying the methods for measuring the K-factors referred to in Article 15 of the IFR.
The European Supervisory Authorities (ESAs) published the list of identified financial conglomerates for 2021.
The Australian Prudential Regulation Authority (APRA) granted license to Barclays Bank PLC and Crédit Agricole Corporate and Investment Bank to operate as foreign authorized deposit-taking institutions under the Banking Act 1959.
EU published, in the Official Journal of the European Union, a corrigendum to the Delegated Regulation 2015/35, which supplements Solvency II Directive (2009/138/EC).
The European Banking Authority (EBA) published an Opinion on the scale and impact of de-risking in European Union and the steps that competent authorities should take to tackle unwarranted de-risking.
The French Financial Markets Authority (AMF) published its 2022 work priorities, along with the supervisory priorities for 2022.
The U.S. Department of the Treasury issued a determination on a request for an exemption, by RBC US Group Holdings LLC, from certain requirements of the rule implementing the qualified financial contracts (QFC) recordkeeping requirements under the Dodd-Frank Act.
The Financial Conduct Authority (FCA) announced that publication of 24 LIBOR settings has ended and that, going forward, the 6 most widely used sterling and Japanese yen settings will be published using a changed methodology.
The People’s Bank of China (PBC) formulated the recently issued Fintech Development Plan (2022 to 2025) under the Outline of the 14th Five-Year Plan (2021-2025) for National Economic and Social Development and the Long-Range Objectives through the Year 2035.
The European Securities and Markets Authority (ESMA) is seeking input from stakeholders on the use of distributed ledger technology, or DLT, for trading and settlement and on the need for amending the regulatory technical standards on regulatory reporting and transparency requirements.