BIS Expresses Concern Over Facebook Entering Cryptocurrency Sector
The Bank for International Settlements (BIS) expresses concern over the disruption that might occur with big tech firms like Facebook entering the financial space, in its annual report for 2019.
As per the report “Big tech in finance: opportunities and risks,” the BIS observes the potential benefits, risks, and challenges posed by companies such as Alibaba, Amazon, Facebook, Google, and Tencent who are venturing into this building fintech revolution.
Regulators need to ensure a level playing field between big techs and banks, taking into account big techs' wide customer base, access to information & broad-ranging business models #BigTech https://t.co/KpLcrlwXui pic.twitter.com/nXTGW8csBT
— Bank for International Settlements (@BIS_org) June 23, 2019
Often described as the bank for central banks, BIS explains that with the huge customer bases that these firms have the benefit of a “data-network-activities loop”, giving them ” the potential to become dominant.” With the entrance of these companies into payments, money management, insurance, and lending, it will the potential for a major change in the finance industry. On the benefits, BIS writes:
“Big techs’ low-cost structure business can easily be scaled up to provide basic financial services, especially in places where a large part of the population remains unbanked. Using big data and analysis of the network structure in their established platforms, big techs can assess the riskiness of borrowers, reducing the need for collateral to assure repayment. As such, big techs stand to enhance the efficiency of financial services provision, promote financial inclusion and allow associated gains in economic activity.”
According to the report, such changes bring new risks, along with the old issues of financial stability and consumer protection, “big techs have the potential to loom large very quickly as systemically relevant financial institutions.”
This particular BIS report raises concern over Facebook’s new Libra project, that will enable social media giant to consider “offering payment services for their customers on a global basis.” BIS suggests that there are also “important new and unfamiliar challenges” that may go beyond the remit of current regulations. The report adds:
“Big techs have the potential to become dominant through the advantages afforded by the data-network-activities loop, raising competition and data privacy issues.”
In truth, such policies are required for a “comprehensive approach” on financial regulation, competition policy, and data privacy regulation. According to the report:
“The aim should be to respond to big techs’ entry into financial services so as to benefit from the gains while limiting the risks. As the operations of big techs straddle regulatory perimeters and geographical borders, coordination among authorities – national and international – is crucial.”
BIS further revealed in the statement that its fears with the new big tech, banks could lose ground, saying:
“Regulators need to ensure a level playing field between big techs and banks, taking into account big techs’ wide customer base, access to information and broad-ranging business models.”
Notably, such major companies have the ability to work across borders and with that comes a need for international coordination on rules and standards to address the potential shift in the “risk-benefit balance,” says BIS. The report suggests, Facebook might not have an easy time with the world’s regulators as the firm seeks to launch financial services for its billions of users.
While the U.S. lawmakers have expressed concerns over the project and scheduled a meeting on July 16, and France has already moved to create a task force within the G7 nations to examine the issues raised by Libra.
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