The International Monetary Fund (IMF) has cautioned that as BigTech firms gradually enter the financial sector and become important service providers, particularly in emerging markets, they are invariably creating new channels of systemic risks.
The Fund, therefore, advised that to achieve effective multiple objectives of financial regulation and supervision, a hybrid approach, combining a mix of entity – and activity-based approaches, is needed.
In its publication of Fintech Notes released Monday the IMF said BigTechs have entered financial services using platform-based technology to facilitate payments and more recently expanded into other areas, such as lending, asset management, and insurance services.
According to the fund, they accumulate data from their nonfinancial and financial activities and draw on consumer data held in different parts of their business (such as via social media).
It noted that “BigTechs are applying new approaches to existing financial services products and services such as underwriting using big data and are also applying machine learning for their key business decisions, such as pricing and risk management across multiple financial sectors.
“Incumbent financial firms have also increased their reliance on BigTech firms to host core IT systems (for example, cloud-based services, which have the potential to improve efficiency and security).”
The IMF cautioned: “This rapid and significant expansion of BigTechs in financial services and their interconnectedness with financial service firms are potentially creating new channels of systemic risks.
“To achieve effective implementation and multiple objectives of financial regulation and supervision, a hybrid approach, combining a mix of entity- and activity-based approaches is needed.”
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BigTech entry in financial services creating new channels of systemic risks ― IMF
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