FSB Examines Financial Stability Implications of Bigtech in Finance
FSB published a report that examines the market developments and financial stability implications with respect to provision of financial services by bigtech firms in emerging market and developing economies or EMDEs. The report finds that expansion of bigtech firms into financial services in emerging market and developing economies has generally been more rapid and broad-based than that in advanced economies. The range of financial services provided by bigtech firms in emerging market and developing economies is also wider than in advanced economies. The report is being delivered to the G20 Finance Ministers and Central Bank Governors for their virtual meeting on October 14, 2020.
The report focuses on the provision of financial services by bigtech firms in emerging market and developing economies and how the nature and scale of such activities differs from those in advanced economies. It then describes the drivers of demand for—and the supply of—financial services provided by bigtech firms in emerging market and developing economies, including the benefits and risks they pose to financial stability. Finally, the report discusses the challenges to regulating such activities and explains that the entry of bigtech firms into financial services could have a number of implications for official-sector policy in emerging market and developing economies. The report highlights that implications for policy may differ depending on bigtech firms’ mode of interaction with incumbent institutions.
Where bigtech firms partner with incumbents, policymakers should be mindful of the new interlinkages this might create with existing financial institutions. Regulators and supervisors might also wish to ensure that parties to such arrangements put in place clear delineations of responsibility and liability between financial institutions and bigtech firms as well as assess potential concentration and operational risks. Financial sector regulators and supervisors could continue to monitor the nature of the commercial response by incumbent financial institutions’ and the implications for their risk profile, viability, and resilience. Where financial services activities are undertaken by new types of actors, such as bigtech firms, the principle of "same risk-same regulation" should apply. It may also be necessary to update regulatory frameworks to ensure all activities are subject to appropriate regulation and supervision and take into account new barriers to competition that might be introduced. Some financial authorities in emerging market and developing economies have also taken steps to tailor their regulatory approach to the relative size of bigtech firms’ activities in financial services. Regulatory frameworks should also remain flexible to adapt to changing business models and activities. In addition to these general considerations, the policy areas that could present additional risks to financial stability in the context of emerging market and developing economies are data governance, operational risk management, and consumer protection.
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Keywords: International, Banking, Insurance, Securities, Bigtech, Emerging Markets, Operational Risk, G20, Developing Economies, Data Governance, Regtech, FSB
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