Depending on the jurisdiction, big tech is moving into financial services at various speeds. In China, big tech already dominates much of the Fintech landscape from payments, to lending, to Wealthtech to savings. It’s all there. In the US, there is a constant, pensive shuffle forward as Google, Apple, Amazon, Facebook etc. continue to provide services once only available at traditional brick and mortar banks – terrified of the coming collision. So what does this epic shift in financial services mean? The Financial Stability Board (FSB) has published two reports considering the implications of Fintech from BigTech as well the shift to cloud-based financial services.
The FSB coordinates at the international level the work of national financial authorities and international standard-setting bodies in the interest of financial stability – a good thing for all. The FSB encompasses 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts. The FSB also conducts outreach with approximately 70 other jurisdictions through its six Regional Consultative Groups.
The FSB is currently chaired by Randal K. Quarles, Governor and Vice Chairman for Supervision, US Federal Reserve; its Vice-Chair is Klaas Knot, President of De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.
According to the FSB, “BigTech’s” involvement in financial services has many benefits. From greater innovation, competition and efficiency, more sophisticated services can be made available to a greater number of individuals. This means better financial inclusion. It may also help facilitate access to financial markets for small and medium-sized enterprises – an area where traditional banks stumble.
But the FSB believes there are two sides to this coin as BigTech may pose some risks to financial stability – some may be similar to what we have seen in traditional financial services firms.
As BigTech is already dominated by a handful of popular names this could lead to a small number of firms dominating the financial services landscape. And we all remember too big to fail – right?
While some policy implications may be obvious there are always the unknowns. Few people saw with the clarity the emergence of the Great Recession until it was too late. And hindsight is always 20/2o…
The FSB states:
“The entry of BigTech firms into financial services raises a range of issues for policymakers. The potential for BigTech firms to achieve scale in financial services very rapidly highlights an overarching need for policymakers to stay abreast of developments, and their implications for systemic risk. It also underscores the importance of cooperation and communication between regulatory and supervisory authorities, including those charged with overseeing the bank and non-bank sectors. Such international cooperation – including via fora such as the FSB – is important given such firms are typically global in nature.”
Policymakers need to consider the scope of BigTech, possibilities for systemic risk and the rise of big data everywhere. Throw in a good dose of AI to the mix and one wonders where it is all heading.
The second report addresses the rapid adoption of cloud computing – a novelty just a decade ago now a staple of all businesses.
Cloud services provide a good number of benefits for financial services firms but risks may arise due to lack the of clarity of jurisdiction. Cloud-based operations are relatively new for financial services providers. This holds true for the regulators tasked with overseeing these operations.
Regardless, the FSB sees no immediate financial stability risks stemming from the use of cloud services by financial institutions. But BigTech in Fintech is another question.
BigTech in finance Market developments and potential financial stability implications is embedded below.
FSB BigTech in finance Market developments and potential financial stability implications Dec 2019