The Bank for International Settlements (BIS) published a Bulletin that reviews the policy challenges for central banks and financial regulators in their oversight of the activity of big tech firms in financial services. In addition to traditional policy concerns such as financial risks, consumer protection, and operational resilience, the entry of big tech firms into financial services gives rise to new policy challenges surrounding the concentration of market power and data governance. To address these policy challenges, the authors endorse complementing the existing activity-based framework with specific entity-based rules, as proposed in several key jurisdictions—notably the European Union, China, and the United States.
Big tech firms entering financial services can scale up rapidly with user data from their existing business lines in e-commerce and social media and by harnessing the inherent network effects in digital services. The authors proposes that entry of big tech firms into financial services necessitates close coordination on the part of the central bank with data governance regulators. Areas where central banks and data governance authorities can usefully contribute their respective analyses include open banking and other data portability rules, protocols regarding data transfers, and role of public infrastructure. Central banks and regulators can assess whether there are asymmetries between banks and big tech firms regarding data access. and whether differential regulatory treatment of data for different institutions creates competitive, consumer protection, or systemic concerns. The current framework for regulation in financial services outside the banking and insurance sectors follows an activities-based approach where providers must hold licenses for specific business lines. Activities-based regulation is grounded on the principle of “same activity, same regulation.” However, given the unique set of challenges that are thrown up by big tech firms’ entry into financial services, a purely activity-based framework for regulation is likely to fall short of an adequate response to these policy challenges, argue the authors. Thus, there is scope to address the policy challenges of big tech firms by developing specific entity-based rules that complement activities-based requirements.
Elements of an entity-based approach for big tech firms are already taking root in several key jurisdictions—notably in the European Union, China, and the United States. These initiatives have been led mainly by competition authorities and legislatures, but the issues they raise impinge deeply on the mission of central banks and financial regulators. In the European Union, the proposed Digital Markets Act has specific requirements on the conduct of firms that are considered to be “gate keepers." In China, the State Council, especially the State Administration for Market Regulation, issued anti-monopoly guidelines for “internet platforms” and the People’s Bank of China introduced rules preventing restrictive practices by non-bank payment service providers. In the United States, the US House of Representatives’ Subcommittee on Antitrust, Commercial, and Administrative Law released an antitrust report with recommendations to reduce anti-competitive behavior of big tech firms, followed by several legislative initiatives that are under discussion. What these recent proposals have in common are provisions aimed at preventing data concentration and anti-competitive practices by big tech firms. For central banks, a natural follow-up to such initiatives would be to study the potential systemic relevance of big tech firms and the need to introduce specific safeguards to guarantee sufficient operational resilience. Given the multi-faceted nature of the public policy challenges that extend to competition and data governance imperatives, central banks and financial regulators should invest with urgency in monitoring and understanding these developments. This will prepare them to act quickly when needed. Cooperation with other domestic authorities and with counterparts in other jurisdictions will be also important in this regard.
Keywords: International, Banking, Bigtech, Regtech, Fintech, Activities Based Approach, Entity Based Approach, Operational Resilience, Platform Business, Open Banking, Data Governance, BIS
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