Financial Stability Board Publishes Reports on Implications of BigTech and Cloud Services
12/09/2019The Financial Stability Board has published two reports on: (i) BigTech in finance and (ii) third-party dependencies on cloud services. The reports form part of the FSB’s ongoing work to analyze structural changes within the financial system in order to harness benefits and mitigate risks.
The first report on BigTech in finance notes the increasing role that “BigTech” firms (i.e. large companies with established technology platforms) play in the global financial system. The report provides an overview of the BigTech sector, noting that the financial activities of BigTech firms are generally narrower in advanced economies, focusing on payments, than in emerging markets and developing economies, where they tend to provide a wider range of services such as lending, insurance and asset management. The report goes on to highlight the major benefits of BigTech in financial services, which include: (i) reductions in the cost of financial services for consumers through improved efficiencies; (ii) cheaper, more convenient and/or more tailored financial products; and (iii) the possibility of cost reductions, flexibility and scalability for financial services providers as a result of their use of cloud computing-based services. Potential risks to financial stability have, however, been identified, stemming from: (i) increased competition (either from BigTech entrants or their displacement of customer relationships), which may affect the profitability of financial institutions; (ii) new operational links that increase the complexity of the financial system; (iii) the expansion of BigTech into the provision of credit, which may entail new forms of untested credit assessment and uncertainty around the ability of BigTech firms to maintain credit supply during a downturn; and (iv) the scale of BigTech firms as providers of financial services, which could become significant enough to cause widespread disruption to the financial system.
The second report on third-party dependencies on cloud services notes that financial institutions use a range of cloud computing and data services provided by third parties, which could pose issues for national regulators stemming from the scale of cloud services provided and the small number of dominant third-party providers. The report finds that the potential benefits of cloud services include: (i) cost reductions through the reduction of initial capital expenditure investments on traditional IT infrastructure to store and secure data; (ii) flexibility through configurable computing resources and the ability to shift business focus quickly without having to incur significant in-house data architecture costs; (iii) scalability, enabling firms to scale back office functions rapidly and support organizational structure changes; and (iv) security and resilience. Potential risks include: (i) difficulties for financial institutions in managing risks effectively; (ii) requirements for financial institutions and national regulators to obtain new forms of access and information rights for the cloud systems in question, potentially reducing transparency and oversight of third parties; and (iii) the possibility of availability risks and data breaches in the cloud services supplied.
View the FSB's report on BigTech in finance.
View the FSB's report on Third-party dependencies in cloud services.
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