Big-tech regulation: In search of a new framework

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. These developments are the source of a number of opportunities but may also present certain risks that need to be addressed by appropriate policy action.

This document illustrates the challenges that this specific business model pose for society cannot be fully addressed by the current (mostly sectoral) regulatory requirements. Two specific regulatory approaches for big techs could then be considered and to some extent combined. The first is segregation, which is a structural approach that seeks to minimize risks arising from group interdependencies between financial and nonfinancial activities by imposing specific ring-fencing rules. An alternative approach to segregation is inclusion, which consists in creating a new regulatory category for big tech groups with significant financial activities.

While the segregation approach is arguably simpler and bolder, the inclusion approach provides for a more tailored option to address specific risks associated with big techs’ business model. In any event there is a clear need for the international regulatory community to develop guidance.

Categories: Recommended Readings
Author: BIS