Upon the announcement of cryptocurrency, Libra, the BIS said that while big tech firms’ foray into finance can bring efficiency gains and broaden financial inclusion, regulators must step up their action to mitigate the new and complex risks involved.
BIS said big tech firms’ extensive user base, access to user data and multi-faceted business models have the potential to rapidly change the financial services industry. Their low-cost structure business is highly scalable, and the network structure of widely-visited platforms can help promote financial inclusion in populations that remain underbanked.
The BIS went on to warn that “the very features that bring benefits also have the potential to generate new risks and costs associated with market power.”
They claimed that big tech firms introduce both known and unfamiliar risks to the financial services landscape.
It notes the risks to financial stability and consumer protection posed by tech giants that “have the potential to loom large very quickly as systemically relevant financial institutions” thereby disrupting the traditional banking sector.
According to the report, such firms efficiently leverage a “data-network-activities loop” that could well accelerate the success of their entry into finance.
The fact that firms such as Facebook have traditional regulatory perimeters and national borders has made the BIS to call for national and international coordination among authorities to “ensure a level playing field between big techs and banks.”