Big Tech — Financial Regulators Are Heading Your Way

February 2019 could rightly be called “FinTech Month” in Basel, Switzerland, given the number of documents released by the Financial Stability Board (FSB) that point to a shift in priorities for the international standard setting body. While little noticed by the financial press, this story analyzes the FSB developments and forecasts the next set of pressure points as policymakers struggle to keep pace with a rapidly evolving market fueled by new technology in the banking, securities, payments, currency and insurance sectors.

The FSB report defines the metric by which it will evaluate financial technology: financial stability.

Insurance regulators and securities regulators are bound to cringe. During the Global Financial Crisis, these sector regulators complained bitterly about the expansion of central bank financial stability priorities into their domains. The FSB report suggests that the FinTech sector may be next.

The challenge here is that many providers of currency, payment, and intermediation services — not to mention blockchain innovators — have never been subject to supervision by a central bank or other financial regulator.

What Comes Next — Missing Pieces in the FinTech Policy Universe

Source: BCMstrategy, Inc. analysis
  • Data Privacy/AI: Expanded use of alternative data to make lending and insurance (health) policy decisions creates real pressure on the boundary between public information and private information, and how private information should be protected. Legitimate questions exist about whether and to what extent credit decisions made using alternative data and/or artificial intelligence incorporate (deliberately or accidentally) impermissible biases.
  • Regulatory Perimeter — The Uber/Airbnb and SWIFT Problems: Should central banks, finance ministries, and/or sectoral regulators require licensing and exercise oversight regarding financial system operations of technology companies? When is a platform a securities exchange and when is it just a technical communication mechanism? Even if it is just a communication mechanism, official sector jurisdiction can be justified on law enforcement/public safety grounds separate from sectoral financial regulation as the SWIFT example illustrates.

The FSB thus has a looming jurisdictional problem. Neither the FSB nor the proposed GFIN provides a cross-border platform for engagement with policymakers that currently loom largest in the FinTech universe: data protection regulators, consumer protection regulators, competition regulators, trade regulators, and law enforcement officials.

With the exception of trade policy (WTO) and law enforcement (FATF), national policymakers in other disciplines do not have a tradition of working together to set common standards. These three policy areas (data protection, consumer protection, competition) have traditionally been seen as the province of national regulators. Many, if not most, of the national entities may have limited or nonexistent authority to engage with counterparts internationally.

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