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    DNB Flags Need to Address Risks Stemming from Digital Platform Models

    June 24, 2021

    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.


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    Keywords: Europe, Netherlands, Banking, Bigtech, Fintech, Regtech, Banking as a Platform, Cloud Computing, DNB

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