By The Bank of International Settlements (BIS) recently made an announcement forewarning that forthcoming financial services which will be offered by big entities such as Facebook could pose new risks for the traditional banking sector.
The Bank of International Settlements, which is a financial institution based in Switzerland and owned by 60 of the world’s central banks, released a reporting drafting its stance on June 23.
Following on Facebook’s recently announced cryptocurrency, Libra, the BIS stated that while these tech firms expansion into finance could result in gains and aid in financial inclusion, regulators will need to up their game in the mitigation of the new and complex risks involved.
As per the BIS, large tech firms vast user bases, ease of access to user data and multi-tiered business models have the full potential to result in an accelerated change to how the financial services industry would operate. Tech firms low-cost business structures are highly scalable. Furthermore, the fact that the network structure of these widely-visited platforms could aid in financial inclusion in nations where most people remain unbanked, as per the report.
Despite these positive sentiments, the BIS warns:
“the very features that bring benefits also have the potential to generate new risks and costs associated with market power.”
Furthermore, the BIS argues that big tech companies introduce new and unfamiliar risks and those which are already known to the financial services industry.
Included in the known issues, the BIS cites the risks pertaining to financial stability and consumer protection posed by large tech entities which “have the potential to loom large very quickly as systemically relevant financial institutions”, ultimately disrupting the fiat banking industry as well existing structures found within financial intermediation.
In addition to this, the BIS’s report also notes that such firms efficiently leverage a “data-network-activities loop” which could very possibly bolster the success of their entry into the financial sector, but this new business model also poses new and unprecedented challenges for regulatory entities, namely competition and issues with the privacy of data.
As firms such as Facebook walk around traditional regulatory perimeters and national borders, the BIS has called for national and international coordination between authorities to “ensure a level playing field between big techs and banks.”
As previously reported by Coinbeat, Facebook recently published its white paper for the highly-anticipated cryptocurrency and blockchain-based financial initiative, Libra on June 18.
Global sentiments around Facebook’s Libra, have been mixed thus far. This includes ambivalent comments from the Chair of the United States Federal Reserve as well as a statement from the chairman of the Russian State Duma Committee on Financial Markets that the token will not be legalized in Russia.
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