FSB Report Examines Impact of Pandemic on Market Structure
The Financial Stability Board (FSB) published a report that discusses the impact of COVID-19 on market structure as well as the associated implications for financial stability.
The report examines whether the COVID-19 pandemic changed the ways in which individuals and firms engage with innovative financial service providers and traditional financial incumbents. The report outlines the types of actions (related to financial stability, competition, data privacy and governance issues) authorities have taken during the pandemic that may impact market structure and the role of different firms in providing digital financial services. The report also stresses the importance of cooperation between regulatory and supervisory authorities, including those charged with overseeing the bank and non-bank sectors, and where relevant, with competition and data protection authorities. The report discusses:
- bigtech and fintech firms’ expansion into financial services that could bring benefits such as improved cost efficiencies and wider financial inclusion for previously underserved groups. It also cautions over the potential for market dominance
- negative financial stability implications from dependence on a limited number of bigtech and fintech providers in some markets, the complexity and opacity of their partnership activities, and potential incentives for risk taking by incumbent financial institutions to preserve profitability
- consumer protection risks from greater dependency on technology as well as the impact of operational vulnerability stemming from the limited number of cloud service providers
- need to address data gaps that hamper the assessment of bigtech firms’ financial risks and systemic importance
- benefits from accelerated digitalization of financial services during the pandemic and whether those observed changes may be structural or revert back to pre-pandemic levels once conditions normalize
- parallel international work on third-party dependencies of the financial sector, for instance, in cloud computing
The report concludes that the pandemic has accelerated the trend toward digitalization of retail financial services. The growth of bigtech firms in particular may give greater urgency to financial stability issues previously discussed, such as the potential for greater systemic importance of new players that may not be subject to financial regulation. This underscores the need to address data gaps that hamper the assessment of the financial risks and systemic importance of bigtech firms. Such data gaps make it difficult for authorities to decide whether and how to include bigtech firms in the regulatory perimeter.
Related Links
Keywords: International, Banking, Fintech, Covid-19, Bigtech, Financial Stability, Data Privacy, Governance, Regtech, Suptech, Systemic Risk, Digitalization, API, Cloud Service Providers, FSB
Featured Experts
Blake Coules
Across 35 years in banking, Blake has gained deep insights into the inner working of this sector. Over the last two decades, Blake has been an Operating Committee member, leading teams and executing strategies in Credit and Enterprise Risk as well as Line of Business. His focus over this time has been primarily Commercial/Corporate with particular emphasis on CRE. Blake has spent most of his career with large and mid-size banks. Blake joined Moody’s Analytics in 2021 after leading the transformation of the credit approval and reporting process at a $25 billion bank.
Previous Article
EIOPA Issues Recommendations Post Insurance Stress TestsRelated Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.