BIS Bulletin exposes concerns about FinTechs
The Bank for International Settlements says existing regulatory frameworks need fine-tuning to deal with fintechs.
Fintechs, or FinTech companies, can enter the financial industry and then scale quickly simply by tapping into user data from their existing businesses. In China, for example, two payment companies, WeChat Pay and Alipay, manage 94%, by transaction value, of the mobile payments market.
There are multiple concerns about the ability of fintechs to quickly accumulate market share, as the Bank for International Settlements (BIS) noted in its August 2021 newsletter, Regulating Big Techs in Finance.
In addition to traditional challenges, such as the need to protect consumers and monitor the operational resilience of the business, the ability of major technologies to concentrate their market power could result in closed-loop systems and higher costs in business cases. areas such as payment infrastructures. Their data governance practices and the potential for abuse are also of concern, the report notes.
Moreover, the supervisory authority of many central banks is insufficient to address these concerns, according to the BIS report. For example, their designation of “systemically important financial institutions” generally only applies to traditional institutions, such as banks.
The current approach to “activity-based” regulation, in which vendors license specific industries, is also not well suited to fintechs. Instead, the BIS advocates adding entity-based rules, such as those already advancing in several jurisdictions, including the EU, China, and the United States.