Big tech groups such as Facebook could “rapidly establish a dominant position” in global finance and pose a potential threat to competition, financial stability and social welfare, according to the Bank for International Settlements.
The BIS, the central bank for central banks, said regulators worldwide may need to “revamp” rules to deal with the structural changes being brought about by entrants that control “key digital platforms” such as ecommerce sites and social networks.
The warnings, in an extract from BIS’s upcoming annual review published on Sunday, highlight regulator unease after Facebook last week outlined its desire to upend the financial system through the launch of Libra, a “global digital currency”.
Facebook has touted Libra as a way to improve financial inclusion for the 1.7bn people without access to bank accounts, while Amazon — which lends to companies that sell on its marketplace — has said it wants to fill the gap left by banks that are increasingly unwilling to lend to small businesses.
The report acknowledged those potential benefits, suggesting that tech groups’ superior customer data could lead to more efficient decision-making and lower barriers to the provision of financial services.
However, it also cautioned that misuse of that data could have “adverse economic and welfare effects”.
Companies could, for example, exclude high-risk groups from socially desirable insurance markets, or price discriminate by working out the maximum rate a borrower would be willing to pay for a loan.
Hyun Song Shin, BIS economic adviser and head of research, said: “The aim should be to respond to big tech’s entry into financial services so as to benefit from the gains while limiting the risks.
“Public policy needs to build on a more comprehensive approach that draws on financial regulation, competition policy and data privacy regulation.”
Regulators responded immediately to news of Libra’s launch, with the Bank of England governor, Mark Carney, telling a meeting of central bankers in Portugal that if Facebook was successful in attracting users “it would instantly become systemic and will have to be subject to the highest standards of regulation”.
The G7 nations, central banks and International Monetary Fund are planning to work together on a high-level forum that will examine the risks of such currencies and try to work out how to ensure they have sufficient controls against money laundering.
The BIS report said that such co-ordination between national and international authorities would be “crucial”.
