How does big technology regulate the delivery of financial services?
Agustín Carstens’ letter from the Bank for International Settlements (BIS), sums up the pros and cons of the growing presence of big technology (Big Tech) in finance and potential regulatory responses to meet the new challenges presented by major technologies in relation to financial stability, fair competition and data management.
Here are the highlights of the speech:
- The presence of large tech companies in financial services is becoming increasingly important: For example, in China “they’ve become 94% of mobile payments in a few years”.
- Big technology brings many benefits to individuals and the economy in general: By lowering the cost of financial services and improving financial inclusion around the world.
- It also creates new challenges in terms of financial stability, fair competition and data governance:
Financial stability: For central banks and financial regulators, big tech companies are too big to fail (too big to fail). The financial sector is overly dependent on its services, for example, “only four large technology companies provide nearly two-thirds of global cloud services, which has become an important service for the financial sector.”
Maintaining fair competition. Big tech has many competitive advantages over other companies thanks to its business models, technology and networks, and digital markets are subject to a winner-takes-all model, which tends to favor oligopoly.
Data monitoring. Big technologies have an incentive to collect as much personal data about their users as possible, raising questions about data protection or manipulating consumer preferences.
- Regulatory responses, which balance overall benefits against potential risks, will require international cooperation “Not only between central banks and financial authorities, but also competition and data authorities.”
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