4. Juni 2021, von Pedro Magalhães Batista
Foto: Annie Spratt
Juan Carlos Crisanto, Johannes Ehrentraud and Marcos Fabian have a great new FSI Brief titled "Big techs in finance: regulatory approaches and policy options". As big techs are increasingly joining the financial sector, public authorities have been studying if current financial regulation, as applied to banking and payments, is sufficient to minimise emerging risks brought by big techs participation. After beginning in the payments sector, big techs are also now migrating to credit, banking, crowdfunding, asset management and insurance, especially in developing nations, sometimes as competitors, but many others as partners with financial institutions. Big tech's competitive advantage stems from the authors' name as a "DNA loop": data analytics, network externalities, and interwoven activities. As big tech attracts more users to their platforms, network effects accelerate its growth and return to scale, and every new consumer brings value to all others. The more data collected, the better provision of analytics and thereby increased consumer welfare. These network effects turn big tech into gatekeepers enabling them to leverage their dominant position to control who enters the market, data availability and market operation.
While big techs bring many benefits to consumer welfare and financial inclusion, they also may create systemic risks and challenge consumer protection and competition, data privacy, and cybersecurity policies. Another interesting observation by the authors is how big tech partnerships with financial institutions might be problematic. They point to how the unbundling of financial services across diverse players can reduce the clarity on accountability and how this diffusion can lower the incentives to the monitoring of clients' activities and increase excessive risk-taking, thereby leading to higher financial risks. The regulatory limitations stem from two main sources, the complexity of understanding bit tech business models and assessing risk profiles and transmission channels. Finally, the authors propose some guidelines to update the current regulatory framework: i. recalibrate the mix of entity-based and activity-based rules; ii. introduce a bespoke policy approach for big techs; and iii. enhance local and international supervisory cooperation.