BIS paper outlines Big Tech regulation challenges in financial services

The Bank for International Settlements (BIS) has published a paper underlining the challenges caused by rapid Big Tech growth in the financial services sector.

According to Regulation Asia, the paper highlights new and unfamiliar challenges that stem from the potential for excessive concentration of market power by Big Tech companies alongside the broader issues concerning data governance.

The research detailed that the new challenges posed by Big Tech lie outside the traditional scope of the remit of a central bank, however they can ‘nevertheless impinge on the central bank’s core mission of ensuring sound money as well as the integrity and smooth functioning of the payment system’.

The paper goes on to say that central bank mandates do not traditionally encompass the broad range of competition and data privacy issues that arise in relation to the activities of Big Techs in financial services. However, Big Techs who enter into financial services require ‘close coordination’ with data governance regulators and competition authorities.

On this point, BIS explained that central banks and data governance authorities can collaborate in areas such as data portability rules, open banking, data transfer protocols and public infrastructure roles.

The organisation went on to argue that a purely activity-based framework – which many existing frameworks tend to fellow – for regulation of Big Tech firms ‘is likely to fall short’

When considering how things could be done differently, the paper emphasised an approach currently taken by China – where Big Tech businesses who hold two or more kinds of financial institutions that meet certain size thresholds are mandated to be licensed as financial holding companies, meaning they become subject to capital, risk management and governance requirements.

The paper detailed, “Given the multi-faceted nature of the public policy challenges that extend to competition and data governance imperatives, central banks and financial regulators should invest with urgency in monitoring and understanding these developments, In this way, they can be prepared to act quickly when needed.”

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