FSI Paper Advocates Entity-Based Regulation for Fintech Firms
The Financial Stability Institute, or FSI, of BIS published a paper by the FSI Chair Fernando Restoy that explores how regulation should evolve to meet public policy goals and encourage fair competition between traditional banks and new fintech and bigtech entrants. However, public policy goals such as financial stability, market integrity, and consumer protection rank first in the order of priorities, when compared to ensuring a level playing field. The paper examines the implications of the move from an entity-based to an activity-based regulatory approach under the principle same activity, same regulation. It advocates that regulatory framework should incorporate entity-based requirements for bigtech in areas such as competition and operational resilience to address the risks stemming from the different activities they perform. This strategy would not only help regulation to achieve its primary objectives, but would also serve to mitigate competitive distortions.
The paper highlights that, in some policy domains, such as consumer protection or anti-money laundering, an activity-based approach may be adequate enough to achieve primary objectives. Yet in others, such as financial stability, an entity-based approach is indispensable. In a third group of policies, such as those on operational resilience and competition, regulations require a combination of activity- and entity-based rules, addressing the specific risks that different types of players can generate to meet those policy objectives. The existing regulatory framework in major jurisdictions does tend to impose comparable rules in certain areas but supervision and enforcement of these rules may be different across different types of entities that provide the same services. A functional—as opposed to a sectoral—organization of financial supervision may help eliminate those unwarranted discrepancies and contribute to a more level playing field.
However, the situation is different in policy areas for which entity-based rules may be appropriate. Despite recent progress, rules aimed at ensuring the adequate operational resilience of traditional financial institutions, such as banks and insurance companies, are generally more stringent than those for other entities. As things move forward and some big tech firms continue to increase their presence in the financial services market, their operations may acquire systemic importance. This should be acknowledged by the regulatory framework. A complication is that they operate across a range of financial and non-financial business lines, thus requiring cooperation across different authorities. Finally, with regard to competition, the potential of big tech firms to achieve a dominant position and to use that position to adopt anti-competitive practices may deserve specific action. An entity-based regulation targeting those risks, including rules that facilitate comprehensive and efficient data-sharing, seems a promising strategy.
The paper argues that there is only limited scope for further harmonizing the formal requirements to be satisfied by different players in specific market segments without jeopardizing higher-priority policy goals. Contrary to what industry and other observers often claim, there seems to be a strong case for relying more, and not less, on entity-based rules. The current framework could be complemented with specific requirements for big tech firms that would address risks stemming from the different activities they perform. The concrete definition and the enforcement of those new rules would entail close cooperation across financial, competition, and data protection authorities worldwide.
Related Links
Keywords: International, Banking, Fintech, Bigtech, Entity Based Approach, Activity Based Approach, Financial Stability, Systemic Risk, BIS
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
Fintech Committee of PBC Outlines Work Plans for 2021Related Articles
CFPB Finalizes Rule on Small Business Lending Data Collection
The Consumer Financial Protection Bureau (CFPB) published a final rule that sets out data collection requirements on small business lending, under section 1071 of the Dodd-Frank Act.
BCBS to Consult on Pillar 3 Climate Risk Disclosures by End of 2023
The Bank for International Settlements (BIS) published a summary of the recent Basel Committee (BCBS) meetings.
FINMA Approves Merger of Credit Suisse and UBS
The Swiss Financial Market Supervisory Authority (FINMA) has approved the takeover of Credit Suisse by UBS.
BOE Sets Out Its Thinking on Regulatory Capital and Climate Risks
The Bank of England (BOE) published a working paper that aims to understand the climate-related disclosures of UK financial institutions.
US Congress Report Examines Data Privacy and Cybersecurity Regulations
The U.S. Congressional Research Service published a report on banking, data privacy, and cybersecurity regulation.
OSFI Finalizes on Climate Risk Guideline, Issues Other Updates
The Office of the Superintendent of Financial Institutions (OSFI) is seeking comments, until May 31, 2023, on the draft guideline on culture and behavior risk, with final guideline expected by the end of 2023.
EU to Conduct One-Off Scenario Analysis to Assess Transition Risk
The European authorities recently made multiple announcements that impact the banking sector.
APRA Assesses Macro-Prudential Policy Settings, Issues Other Updates
The Australian Prudential Regulation Authority (APRA) published an information paper that assesses its macro-prudential policy settings aimed at promoting stability at a systemic level.
BIS Paper Examines Impact of Greenhouse Gas Emissions on Lending
BIS issued a paper that investigates the effect of the greenhouse gas, or GHG, emissions of firms on bank loans using bank–firm matched data of Japanese listed firms from 2006 to 2018.
HMT Mulls Alignment of Ring-Fencing and Resolution Regimes for Banks
The HM Treasury (HMT) is seeking evidence, until May 07, 2023, on practicalities of aligning the ring-fencing and the banking resolution regimes for banks.