The Central Bank of the Netherlands (DNB) published a report emphasizing that the rising importance of bigtech firms in the financial sector requires special attention from supervisory authorities. Legislation and regulations need to be adapted in response to the new risks and additional European-level supervision needs to be developed. Focus is required on closer cooperation among supervisors while financial institutions must be challenged on the sustainability of their business models.
The financial market of the future depends on the development of relations between bigtech firms, banks, and insurers. Two decisive factors in this respect are strategic choices of bigtech firms regarding their role in cooperation and financial institutions’ innovative power. The report highlights that the developments have the following three implications for policy and supervision:
- Financial institutions must be challenged on the sustainability of their business models. The scenario analysis in the report shows that the rise of bigtech firms may have profound consequences for the business models and strategies of financial institutions. Based on the scenarios, institutions will be seriously challenged on their strategies and the sustainability of their business models in view of the ongoing digitalization of financial services. Whether institutions opt for a platform strategy or for a specific niche, they must be prepared to bolster capacity in terms of technologies and organization.
- Regulations must be adjusted to address new risks. While network effects are stimulating growth and concentration of activities at bigtech platforms, the regulatory frameworks are not yet adapted to respond to the consequences for the financial markets in a structural way. The rise of bigtech firms in the financial sector may cause concentration risks in the areas of financial services, the distribution of financial products and services, and access to consumer data. The relevant regulatory frameworks need to be adjusted to address these risks. In the longer term, the continuity and resolvability of systemically important bigtech firms and distribution platforms may also demand attention.
- Toward European supervision and cooperation between supervisory authorities. Bigtech firms are cross-border operators. As the role of bigtech firms in the financial sector is steadily increasing, financial supervision of these parties at the European level is essential. In addition, an increasingly platform-based financial sector and economy require closer cooperation between supervisory authorities. Individual supervisory authorities with mandates in the areas of cybersecurity, data protection, competition, and financial supervision should intensify their cooperation to enable more comprehensive supervision. Effective cloud supervision requires aligning regulatory frameworks at the European level to prevent overlapping or conflicting rules in national and European regulations.
Keywords: Europe, Netherlands, Banking, Bigtech, Fintech, Regtech, Banking as a Platform, Cloud Computing, DNB
Previous ArticleAPRA Grants License to IN1Bank, to Go Live with APRA Connect Testing
In a letter addressed to the industry, the Australian Prudential Regulation Authority (APRA) set out an updated schedule of policy priorities for the banking, insurance, and superannuation industries.
The European Commission (EC) adopted a comprehensive review package of Solvency II rules in the European Union.
The Office of the Comptroller of the Currency (OCC) issued Versions 1.0 of the "Earnings" and "Regulatory Reporting" booklets of the Comptroller's Handbook.
The European Central Bank (ECB) published results of its economy-wide climate stress test, which aimed to assess the resilience of non-financial corporates and euro area banks to climate risks.
The European Banking Authority (EBA) published a report on the use of digital platforms in the banking and payments sector in European Union.
The Hong Kong Monetary Authority (HKMA) published updates on the policy measures that were announced in context of the ongoing pandemic.
The International Swaps and Derivatives Association (ISDA), along with several other associations, submitted a joint response to the Basel Committee on Banking Supervision (BCBS) consultation on preliminary proposals for the prudential treatment of cryptoasset exposures.
BIS published the September issue of the Quarterly Review, which contains special features that analyze the rapid rise in equity funding for financial technology firms, the effectiveness of policy measures in response to pandemic, and the evolution of international banking.
The Basel Committee for Banking Supervision (BCBS) met in September 2021 and reviewed climate-related financial risks, discussed impact of digitalization, and welcomed efforts by the International Financial Reporting Standards (IFRS) Foundation to develop a common set of sustainability reporting standards
The Office of the Comptroller of the Currency (OCC) issued a Cease and Desist Order against MUFG Union Bank for deficiencies in technology and operational risk governance.