Featured Product

    FSI Paper Suggests Regulatory and Policy Options to Oversee Bigtechs

    March 16, 2021

    The Financial Stability Institute (FSI) of BIS published brief paper examining the regulatory approaches and policy options for oversight of large technology companies, also known as bigtech firms, operating in the financial sector. The paper examines the regulatory landscape for such bigtech firms, discusses the avenues for improvement, explains why bigtech firms are unlike other entities and deserve regulatory attention, outlines their regulatory treatment and financial licensing in a number of jurisdictions, and offers considerations for policymakers. The paper concludes that the entry of bigtech firms into finance calls for a comprehensive public policy approach, which combines financial regulation, competition policy, and data privacy.

    At present, financial services represent a relatively small part of the overall activities of bigtech firms, though this can change rapidly due to the unique features of their business models and they could quickly become systemically important or too-big-to-fail. The financial operations of bigtech firms are subject to the same requirements as those of other market participants, as part of which the bigtech firms need to hold appropriate licenses to perform regulated financial activities or provide their services in partnership with financial institutions that meet the regulatory requirements. Risks connected with bigtech activities in finance may not be fully captured by the present regulatory approach, which is geared toward individual entities or specific activities and not the risks that are created by substantive interlinkages within bigtech groups and their role as critical service providers for financial institutions. The entry of big techs into finance calls for a comprehensive public policy approach that combines financial regulation, competition policy, and data privacy. The paper presents the following policy options that may support authorities in their considerations of the best way to adjust the regulatory framework to address the risks that the business models of bigtech firms entail:

    • Recalibrating mix of entity-based and activity-based rules. Some advocate that any policy adjustments for bigtech firms should move from an entity-based regulatory approach to one that is activity-based, applying the principle of “same activity, same regulation.” However, activity-based regulation can only complement, rather than substitute for, entity-based regulation. For bigtech firms, their business model involves a bundle of varying activities (such as e-commerce, payments, and cloud services), each of which gives rise to a specific set of potentially interrelated risks. Thus, the paper notes that characteristics of bigtech firms should be considered in how they are regulated and makes a case for developing more entity-based rules for bigtech firms in specific regulatory areas such as competition and operational resilience.
    • Developing bespoke policy approach for bigtech firms. Policymakers may conclude that the unique features of bigtech firms warrant a comprehensive public policy approach that focuses not only on individual bigtech entities and their activities but also on their interactions within the bigtech (digital) ecosystem. They can build on existing policy frameworks such as the ones for financial conglomerates and global stablecoin arrangements as well as on approaches being developed by authorities worldwide. A key element of this policy framework would be to monitor and mitigate the systemic risk stemming from a combination of the wide range of activities of bigtech firms. A foundational element of any such approach would be to establish a set of objective criteria for qualifying a firm as bigtech, which could be difficult given the heterogeneity of bigtech firms. 
    • Enhancing local and international supervisory cooperation. In the light of the cross-sectoral and cross-border nature of bigtech activities, it is imperative to emphasize on cooperation and coordination at the local and international levels. A practical step in this direction could be to establish cross-sectoral and cross-border cooperative arrangements between national authorities, including at least financial, competition, and data protection authorities. Such cooperation arrangements could involve or augment the existing arrangements and build on the experience of running supervisory colleges for banks.

     

    Related Links

    Keywords: International, Banking, Insurance, Securities, Fintech, Cloud Service Providers, Bigtech, Regulatory Approach, Policy Options, Licensing, BIS, FSI

    Related Articles
    News

    EBA Proposes Standards for IRRBB Reporting Under Basel Framework

    The European Banking Authority (EBA) proposed implementing technical standards on the interest rate risk in the banking book (IRRBB) reporting requirements, with the comment period ending on May 02, 2023.

    January 31, 2023 WebPage Regulatory News
    News

    FED Issues Further Details on Pilot Climate Scenario Analysis Exercise

    The U.S. Federal Reserve Board (FED) set out details of the pilot climate scenario analysis exercise to be conducted among the six largest U.S. bank holding companies.

    January 17, 2023 WebPage Regulatory News
    News

    US Agencies Issue Several Regulatory and Reporting Updates

    The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.

    January 04, 2023 WebPage Regulatory News
    News

    ECB Issues Multiple Reports and Regulatory Updates for Banks

    The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.

    January 01, 2023 WebPage Regulatory News
    News

    HKMA Keeps List of D-SIBs Unchanged, Makes Other Announcements

    The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.

    December 30, 2022 WebPage Regulatory News
    News

    EU Issues FAQs on Taxonomy Regulation, Rules Under CRD, FICOD and SFDR

    The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.

    December 29, 2022 WebPage Regulatory News
    News

    CBIRC Revises Measures on Corporate Governance Supervision

    The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.

    December 29, 2022 WebPage Regulatory News
    News

    HKMA Publications Address Sustainability Issues in Financial Sector

    The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.

    December 23, 2022 WebPage Regulatory News
    News

    EBA Updates Address Basel and NPL Requirements for Banks

    The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.

    December 22, 2022 WebPage Regulatory News
    News

    ESMA Publishes 2022 ESEF XBRL Taxonomy and Conformance Suite

    The General Board of the European Systemic Risk Board (ESRB), at its December meeting, issued an updated risk assessment via the quarterly risk dashboard and held discussions on key policy priorities to address the systemic risks in the European Union.

    December 22, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8699