Issues in the regulation of big techs in finance

Presentation by Mr Hyun Song Shin, Economic Adviser and Head of Research of the BIS, at the Peterson Institute for International Economics virtual event, "A Holistic Look at Big Tech Regulation", 10 February 2021.

The business model of big techs rests on the direct interactions of users and the data that are an essential by-product of that interaction. As big techs make inroads into financial services, the user data in their existing businesses in e-commerce, social media or search give them a competitive edge. Network effects generate yet more user activity, generating the "data-network-activities loop" or "DNA loop". The DNA loop is a force for greater financial inclusion, better services and lower costs. Yet the same network effects that lead to benefits can erect silos or "walled gardens" that exclude competitors and give rise to anti-competitive practices and further entrenchment. Breaching walled gardens through the combination of data access policies and common technical standards for data transfer is a way to channel the network effects so that a vicious circle can turn into a virtuous one. Payment services based on open markets and application programming interfaces (APIs) are one possible route, and many jurisdictions have opted to take it. Credit intermediation is another area where the policy trade-offs necessitate intelligent design of regulation that takes account of financial stability, competition and data privacy. Increasingly, the regulatory framework for big techs is transitioning from the traditional activities-based model (based on licences for individual business lines in payments, credit, insurance, wealth management, etc) towards entity-based rules that impose prudential and entity-specific criteria, as in the banking sector. Entity-based rules can take better account of the spillovers across sectors and business lines.