Big tech regulation: in search of a new framework

Presentation by Mr Fernando Restoy, Chair, Financial Stability Institute, Bank for International Settlements, at the EBA Board of Supervisors' Away Day, 12 July 2022.

The disruption caused by technological innovation in the market for financial services has given rise to new products, new delivery channels and, most importantly, new providers - such as big techs - that follow a rather unique business model. Risks presented by big techs are linked to their combined financial and non-financial activities and cannot be addressed by simply ensuring that these activities are made to fit under the current (mostly sectoral) regulatory requirements. The international work on financial conglomerates that began in the 1990s provides useful material to identify group-level requirements that could help address risks stemming from the combination of different activities. Yet an entity-based regulatory framework for big techs should not normally have a pivotal prudential focus as it also needs to be applicable to groups with a significant but not necessarily predominant involvement in regulated financial activities. The design of a new regulatory framework requires a comprehensive list of controls over the governance, conduct of business, operational resilience and, when appropriate, financial soundness of the group as a whole. Those controls imply new obligations for the parent company of big tech groups that would complement existing sectoral requirements regarding the activities performed by their subsidiaries. Given the cross-border nature of most big tech groups, requirements should ensure adequate home-host coordination supported by international regulatory standards. As rules span across areas which are outside the usual remit of financial regulators, cooperation should also be sought between them and other (particularly data and competition) authorities.