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    FSB Report Examines Impact of Pandemic on Market Structure

    March 21, 2022

    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.


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    Keywords: International, Banking, Fintech, Covid-19, Bigtech, Financial Stability, Data Privacy, Governance, Regtech, Suptech, Systemic Risk, Digitalization, API, Cloud Service Providers, FSB

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