Featured Product

    BIS Report Discusses Regulatory Issues Related to Big Techs in Finance

    June 23, 2019

    BIS has pre-released a chapter of the BIS Annual Economic Report; this chapter focuses on the risks and opportunities presented by large technology firms (big techs) in the financial services sector. The chapter highlights that the entry of big techs presents new and complex trade-offs among financial stability, competition, and data protection. Regulators need to ensure a level playing field between big techs and banks, taking into account big techs' wide customer base, access to information, and broad-ranging business models.

    The chapter begins with a description of big techs' inroads into finance. It then analyzes the reasons for the entry of big techs into finance and how the business models of big techs can create competitive advantages over banks. Finally, the chapter analyzes the potential effects of big techs on financial intermediation and discusses possible implications for public policy. The chapter also highlights that big techs have ventured into lending, mainly to small and medium enterprises and consumers. Lending decisions of big techs are linked to the processing of large quantities of information (big data) using advanced analytical methods such as machine learning and network analysis (artificial intelligence). Big data relevant for financial services obtained directly from big tech platforms include transactions (sales volumes and average selling prices); reputation-related information (claim ratio, handling time, reviews, and complaints); and industry-specific characteristics (sales seasonality, demand trend, and macroeconomic sensitivity). This can be also enriched by using non-traditional data obtained via social media and other channels.

    The entry of big techs such as Alibaba, Amazon, Facebook, Google, and Tencent into financial services, including payments, savings, and credit, could make the sector more efficient and increase access to these services, but also introduces new risks, the BIS writes in its Annual Economic Report. In offering financial services, big techs both compete and cooperate with banks. BIS notes that these companies offer many potential benefits, including enhanced efficiency of financial services provision, facilitating financial inclusion and promoting associated gains in economic activity. However, big techs' entry into finance introduces additional elements into the risk-benefit equation. The role of big techs in finance raises issues that go beyond traditional financial risks, according to BIS. Tackling these requires striking a balance between financial stability, competition, and data protection.

    Regulators need to ensure a level playing field, taking into account wide customer bases and particular business models of big techs. As big techs' move into financial services accelerates, expanding beyond regulatory perimeters and geographical borders, policymakers will need institutional mechanisms to help them work and learn together. Coordination among authorities—national and international—is crucial to sharpening and expanding their regulatory tools. Banks are subject to regulations that govern their activities and their market entry is subject to strict licensing requirements. Similarly, when big techs engage in banking activities, they must be subject to the same regulations that apply to banks. The aim is to close the regulatory gaps between big techs and regulated financial institutions to limit the scope for regulatory arbitrage through shadow banking activities. To this end, regulators have extended existing banking regulations to big techs. The basic principle is "same activity, same regulation."

     

    Related Links

    Keywords: International, Banking, Big Tech, Big Data, Credit Risk, Regulatory Arbitrage, Shadow Banking, BIS

    Related Articles
    News

    EU Agencies Update LCR Rule and Macro-Prudential Policy Recommendation

    The European Commission (EC) published the Delegated Regulation 2022/786 with regard to the liquidity coverage requirements for credit institutions under the Capital Requirements Regulation (CRR).

    May 23, 2022 WebPage Regulatory News
    News

    EBA Publishes Regulatory Standards to Identify Shadow Banking Entities

    The European Banking Authority (EBA) published the final draft regulatory technical standards specifying the criteria to identify shadow banking entities for the purposes of reporting large exposures.

    May 23, 2022 WebPage Regulatory News
    News

    OSFI Discusses Benchmark Rate Transition, Sets Out Work Priorities

    The Office of the Superintendent of Financial Institutions (OSFI) published the strategic plan for 2022-2025 and the departmental plan for 2022-23.

    May 17, 2022 WebPage Regulatory News
    News

    EBA Proposes Standards to Support Secondary NPL Markets

    The European Banking Authority (EBA) is consulting, until August 31, 2022, on the draft implementing technical standards specifying requirements for the information that sellers of non-performing loans (NPLs) shall provide to prospective buyers.

    May 17, 2022 WebPage Regulatory News
    News

    EU Confirms Agreement on Rules on Cybersecurity and Banking Resolution

    The European Council and the Parliament reached an agreement on the revised Directive on security of network and information systems (NIS2 Directive).

    May 13, 2022 WebPage Regulatory News
    News

    EBA Issues Standards for Crowdfunding Service Providers Under ECSPR

    The European Banking Authority (EBA) published the final draft regulatory technical standards specifying information that crowdfunding service providers shall provide to investors on the calculation of credit scores and prices of crowdfunding offers.

    May 13, 2022 WebPage Regulatory News
    News

    EU to Amend Credit Risk Adjustment Rules; ESAs Submit Queries on SFDR

    The European Council published a draft Commission Delegated Regulation to amend the regulatory technical standards on specification of the calculation of specific and general credit risk adjustments.

    May 13, 2022 WebPage Regulatory News
    News

    EU Confirms Agreement on Rules on Cybersecurity and Banking Resolution

    The European Securities and Markets Authority (ESMA) published a paper that examines the systemic risk posed by increasing use of cloud services, along with the potential policy options to mitigate this risk.

    May 12, 2022 WebPage Regulatory News
    News

    MAS Amends Notice 635 and Issues Second Proposal on Green Taxonomy

    The Monetary Authority of Singapore (MAS) published amendments to Notice 635, which sets out requirements that a bank in Singapore has to comply with when granting an unsecured non-card credit facility to individuals.

    May 12, 2022 WebPage Regulatory News
    News

    EC Consults on PSD2 and Open Finance; EU Reaches Agreement on DORA

    The European Commission (EC) published a public consultation on the review of revised payment services directive (PSD2) and open finance.

    May 11, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8201