The rapid growth of big tech firms in financial services presents various policy challenges. Some are variations of familiar themes that lie squarely within the traditional scope of central banks and financial regulators, such as the mitigation of financial risks and the oversight of operational resilience and consumer protection.
Assessing big techs’ resilience through a financial cycle will necessitate more systematic monitoring and understanding of big tech business models on the part of the authorities, for instance on whether learning algorithms may inject systematic biases to the detriment of financial stability.
As well as issues that arise from traditional financial stability concerns, there are new and unfamiliar challenges stemming from the potential for excessive concentration of market power, as well as broader issues concerning data governance.
Big tech firms entering financial services can scale up rapidly with user data from their existing business lines in e-commerce and social media, and by harnessing the inherent network effects in digital services.
In addition to traditional policy concerns such as financial risks, consumer protection and operational resilience, the entry of big techs into financial services gives rise to new challenges surrounding the concentration of market power and data governance.
The current framework for regulating financial services follows an activities-based approach where providers must hold licences for specific business lines. There is scope to address the new policy challenges by developing specific entity-based rules, as proposed in several key jurisdictions – notably the EU, China and the US.