Featured Product

    BIS Studies How Platform Models Impact Financial Stability & Inclusion

    January 10, 2022

    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. 

     

    Related Links

    Keywords: International, Banking, Platform Businesses, Lending, Fintech, Regtech, Open Banking, Data Privacy, Financial Stability, Financial Inclusion, Data Protection, BIS

    Related Articles
    News

    EBA Clarifies Use of COVID-19-Impacted Data for IRB Credit Risk Models

    The European Banking Authority (EBA) published four draft principles to support supervisory efforts in assessing the representativeness of COVID-19-impacted data for banks using the internal ratings based (IRB) credit risk models.

    June 21, 2022 WebPage Regulatory News
    News

    EP Reaches Agreement on Corporate Sustainability Reporting Directive

    The European Council and the European Parliament (EP) reached a provisional political agreement on the Corporate Sustainability Reporting Directive (CSRD).

    June 21, 2022 WebPage Regulatory News
    News

    PRA Consults on Model Risk Management Principles for Banks

    The Prudential Regulation Authority (PRA) launched a consultation (CP6/22) that sets out proposal for a new Supervisory Statement on expectations for management of model risk by banks.

    June 21, 2022 WebPage Regulatory News
    News

    EC Regulation Amends Standards for Calculating Credit Risk Adjustments

    The European Commission (EC) published the Delegated Regulation 2022/954, which amends regulatory technical standards on specification of the calculation of specific and general credit risk adjustments.

    June 21, 2022 WebPage Regulatory News
    News

    BIS Hub Updates Work Program for 2022, Announces New Projects

    The Bank for International Settlements (BIS) Innovation Hub updated its work program, announcing a set of projects across various centers.

    June 17, 2022 WebPage Regulatory News
    News

    EIOPA Issues Cyber Underwriting Proposal, Statement on Open Insurance

    The European Insurance and Occupational Pensions Authority (EIOPA) published two consultation papers—one on the supervisory statement on exclusions related to systemic events and the other on the supervisory statement on the management of non-affirmative cyber exposures.

    June 17, 2022 WebPage Regulatory News
    News

    US Senate Members Seek Details on SEC Proposed Climate Disclosure Rule

    Certain members of the U.S. Senate Committee on Banking, Housing, and Urban Affairs issued a letter to the Securities and Exchange Commission (SEC)

    June 16, 2022 WebPage Regulatory News
    News

    EIOPA Consults on Review of Securitization Framework in Solvency II

    The European Insurance and Occupational Pensions Authority (EIOPA) published a consultation paper on the advice on the review of the securitization prudential framework in Solvency II.

    June 16, 2022 WebPage Regulatory News
    News

    UK Authorities Issue Regulatory and Reporting Updates for Banks

    The Prudential Regulation Authority (PRA) issued a statement on PRA buffer adjustment while the Bank of England (BoE) published a notice on the statistical reporting requirements for banks.

    June 15, 2022 WebPage Regulatory News
    News

    BCBS Issues Climate Risk Principles while HKMA Expresses Its Support

    The Basel Committee on Banking Supervision (BCBS) issued principles for the effective management and supervision of climate-related financial risks.

    June 15, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8280