Large technology disrupters could pose risk for financial stability, warns global regulator

The move to finance large technology companies could do more to disrupt the sector than niche competitors and represent new threats to financial stability, warned a global manager of financial management.

The Financial Stability Board, which recommends financial rules to G20 countries, said on Thursday that large, well-established technology companies could "dramatically change" financial services much more than companies specializing in financial technologies, and that incumbents may need to take greater risks to follow. The regulators and central bankers that make up the CSF fear that the size of Big Tech will prevent its presence from creating a more competitive financial sector in the long run.

The FSB also fears that Big Tech will provide outsourcing services, such as the cloud, on which a growing number of banks and financial companies are resorting. While these services – the supply of which is dominated by Google, Amazon Web Services and Microsoft – reduce the risk of a bank at the individual level, they increase system-wide risk in the event of a major supplier's failure, said the FSB in its report.

The competitive impact of Big Tech could be greater than that of financial technology companies. Large companies generally have large networks of established customers and enjoy a high reputation and trust. In many cases, these companies could also use proprietary customer data generated by other services, such as social media, to tailor their offerings to each customer's preferences. Combined with a strong financial position and access to low-cost capital, large companies could very quickly expand into the financial services sector. This would be especially true when network effects are present, such as payments and settlements, loans and possibly insurance.

Big Tech is increasingly examining regulations on several fronts after a series of scandals involving privacy, electoral manipulation and anti-competitive behavior. The FSB reflections on cloud echo have already been mentioned by the Bank of England and the European Banking Authority. Nevertheless, the Board did not make specific recommendations other than the ongoing monitoring of Big Tech's impact on the financial sector.

The small fintechs, meanwhile, have not radically changed the financial services because they have not had access to low-cost financing or a large clientele needed to disrupt the dominance of traditional banks, concluded the FSB.