The financial world is currently facing major disruption with the increasing presence of Big Tech firms such as Amazon, Apple and Google in the industry. As these companies push further into financial services with their data-driven business models, there is growing concern that the current regulatory approach is not equipped to handle the related policy challenges.
Agustín Carstens, General Manager of the Bank for International Settlements (BIS), believes that it is high time to consider tangible options for action and calls for a coordinated regulatory response to restrict Big Tech's incursions into financial services.
Carstens argues that Big Tech's mastery of user data and their large customer reach could rapidly change the financial services industry, leaving established banks at a disadvantage. The current regulatory approach was not designed with Big Tech in mind and therefore cannot address the possible spillover effects across all the activities performed by these companies or their potential systemic relevance.
Carstens outlines three possible alternative approaches for a new regulatory framework that moves away from activity-based rules and regulations to entity-based:
- Restriction Approach: This approach would prohibit Big Techs from engaging in regulated financial activities.
- Segregation Approach: This approach would require Big Techs to form a financial subgroup that would be ring-fenced.
- Inclusion Approach: This approach would impose group-wide requirements on governance, conduct, operational resilience, and financial soundness.
The segregation and inclusion approaches are compatible to some extent, and a combination of both may be desirable in practice. Carstens highlights that the implementation of any new regulatory framework raises practical questions, and a thorough international policy debate is essential to support the search for answers. International standards are the only way to shape a consistent policy response.
Big Tech's incursions into financial services present significant policy challenges that the current regulatory approach cannot fully address. It is high time for a regulatory re-think, and Agustín Carstens, General Manager of the BIS, outlines three alternative approaches for a new regulatory framework that moves away from activity-based rules to entity-based regulations. A thorough international policy debate is essential to support the search for answers and shape a consistent policy response.
