FSB Calls on Authorities to Regulate BigTech in Financial Services

Where financial services activities are undertaken by new types of actors, such as BigTech firms, the principle of ‘same risk-same regulation’ should apply, the report says.

The FSB (Financial Stability Board) has published a new report about market developments and financial stability implications from the provision of financial services by BigTech firms in emerging market and developing economies (EMDEs).

According to the report, the expansion of BigTech firms in financial services in EMDEs has generally been more rapid and broad-based than that in advanced economies, as lower levels of financial inclusion create a source of demand for BigTech services.

The supply of financial services by BigTech firms in EMDEs has been supported by the increasing availability of mobile phones and internet access, which allow these firms to reach customers who were previously under-served, including through the use of novel sources of customer data to cater to those lacking a credit history.

The expansion of BigTech firms in EMDEs has had benefits, giving rise to more efficient financial services that can be cheaper, more convenient, and tailored to users’ needs, thereby offering opportunities to improve consumer welfare and support financial stability.

However, the expansion of BigTech activity also gives rise to operational and consumer protection risks (such as in relation to their use of personal data) and concerns about market dominance.

While competition from BigTech firms may spur innovation on the part of incumbent institutions, it may also have implications for incumbents’ safety, soundness and risk-taking.

“Where financial services activities are undertaken by new types of actors, such as BigTech firms, the principle of ‘same risk-same regulation’ should apply,” the report says.

“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.”

Where BigTechs may have new forms of linkages and dependencies with technology vendors or affiliated companies, or where they offer a range of financial services activities in a single platform, these activities should be subject to ‘end to end’ supervision and regulation, the report says.

Financial authorities may also “usefully contribute” to the development of robust public policy and frameworks with respect to data governance, consumer protection and operational risk management.