The involvement of tech giants — such as Google, Apple and Samsung — in financial services could prove destabilizing to the global financial system, warns the Financial Stability Board (FSB).
An FSB report examined the financial-stability implications of so-called “BigTech” firms entering the financial business. It noted that, while there are numerous possible benefits to BigTech firms entering the space, it also poses risks to stability, including risks posed by the use of leverage and liquidity issues, as well as assorted operational risks.
Additionally, there’s the prospect of BigTech exploiting its scalability to quickly dominate the financial sector.
“The financial services offerings of BigTech firms could grow quickly given their significant resources and widespread access to customer data, which could be self-reinforcing via network effects,” the FSB said. “An overarching consideration is that a small number of BigTech firms may in the future come to dominate, rather than diversify, the provision of certain financial services in some jurisdictions.”
This could create “too big to fail” risks among large tech firms, and poses a range of possible issues for regulators, the report suggested.
The FSB said policymakers should consider whether added regulation and/or financial oversight of these firms is needed, along with possible policies governing data ownership, access and portability.
“Regulators and supervisors might also be mindful of the degree to which the resilience of incumbent financial institutions and the viability of their business models might be affected by their interlinkages with and competition from BigTech firms,” the FSB noted.
A separate FSB report examined the financial stability risks stemming from financial firms’ reliance on third-party cloud services.
It noted that “there could be issues for financial institutions that use third-party service providers due to operational, governance and oversight considerations, particularly in a cross-border context and linked to the potential concentration of those providers.”
While there aren’t immediate stability risks arising from the use of cloud computing and data services, the FSB report said that policymakers may need to reconsider the regulatory standards and oversight for outsourcing arrangements, and their ability to coordinate, cooperate and share information to provide oversight of cloud services used by financial institutions.