Boundaries Blurring For Bigtech, Warns Dutch Supervisor

April 14, 2023
The rising importance of bigtechs such as Google, Amazon, Apple and Facebook in the financial sector requires special attention from supervisory authorities, De Nederlansche Bank has said.

The rising importance of BigTechs such as Google, Amazon, Apple and Facebook in the financial sector requires special attention from supervisory authorities, De Nederlansche Bank (DNB) has said.

The rising importance of bigtech firms in the financial sector may lead to “radical changes” in the financial landscape, a new report by the DNB has said.

Although network effects are stimulating growth and concentration of activities at bigtech platforms, the regulatory frameworks are not yet adapted to respond to the consequences for the financial markets in a structural way.

The Netherlands’ regulator warns that bigtech’s increasing role in the financial sector may cause concentration risks in the areas of financial services, the distribution of financial products and services, and access to consumer data.

It echoes the anxieties that have become a staple for European financial authorities as they question how to deal with the meteoric rise of US and Chinese technology firms.

For example, Banque de France chief Francois Villeroy de Galhau called in February this year for international rulemakers, such as the Organisation for Economic Co-operation and Development (OECD) and Bank for International Settlements (BIS), to develop a regime.

State of play

The report titled "Changing Landscapes, Changing Supervision" does, however, show that disruption has not necessarily happened for payments yet.

Here, bigtech has mainly succeeded via partnerships as opposed to complete competition.

“While some bigtechs (such as Google) have licences entitling them to provide payment services in the European Union, they now mainly provide a technical layer over the existing payment instruments and provide their payment services in cooperation with banks and credit card companies,” the report points out.

What is more, the trust is not there yet from consumers.

A survey conducted by the DNB, for example, shows that 93 percent of respondents have an adequate or high degree of trust in the bank holding their main payment account.

In contrast, 80 percent have little or very little trust in bigtech.

It was noted, however, that consumers will consistently share their data with bigtechs via smartphones and tablets — a situation that the report regards as “paradoxical”.

The regulatory environment

According to the DNB, legislation and regulations need to be adapted in response to new risks. It also called for more European-level supervision to be developed focusing on closer cooperation between different supervisors.

The report says that although financial institutions will have to be seriously challenged on the sustainability of their business models, in the longer term, the continuity and resolvability of systemically important bigtechs and distribution platforms may also demand attention.

“In contrast to fintechs or many traditional banks and insurers, bigtechs operate internationally and even globally,” the report says. “This means adequate supervision of bigtechs’ financial activities is often only possible at the European level.”

This, in part, is starting to happen with regulation such as the Digital Markets Act (DMA) and Digital Services Act (DSA), which both tackle the gatekeeper-esque powers that bigtech firms have accumulated.

Meanwhile, digital finance regulation such as the Markets in Crypto-Assets (MiCA) regulation, which places tough rules on stablecoin issues, and the Digital Operational Resilience Act (DORA) aim to tackle potential weaknesses in information technology and, therefore, the use of cloud software.

“As the role of bigtechs in the financial sector is steadily increasing, financial supervision of these parties at the European level is essential,” the central bank says.

In addition, the report warns that an increasingly platform-based financial sector and economy require closer cooperation between supervisory authorities.

Here, the DNB calls for individual supervisory authorities with mandates in the areas of cybersecurity, data protection, competition and financial supervision to intensify their cooperation to enable more comprehensive supervision.

The DNB also points to the European supervisory authorities (ESAs), who are currently examining whether — if a bigtech or other company sells insurance products in multiple countries — supervisory coordination is necessary in which financial supervisory authorities from the various European countries that jointly supervise the rules on the sale of insurance.

The role of bigtech has also been considered as the EU looks to overhaul the revised Payment Services Directive (PSD2).

For example, the EU’s study on the application of PSD2 suggested that future regulation needs to account for how competition has been distorted by the provision of service by bigtech firms, echoing the DNB that closer cooperation between national competent authorities is necessary to remedy the deficiency.

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