Digital finance: EU watchdogs urge quick action to catch up with big tech

Deepak Gupta February 7, 2022
Updated 2022/02/07 at 1:02 PM

Quick action is needed to update how cross-border financial services are vetted and consumers protected as the sector becomes digitized with “Big Tech” playing an ever-increasing role, European Union regulators said on Monday.

People are turning to social media and using smartphones to buy and sell stocks, move money through bank accounts and make payments, a trend accelerated by the COVID-19 pandemic, leaving regulators trying to catch up.

“Digital finance has unlocked new synergies between financial and non-financial activities that potentially introduce systemic risk to the financial services market,” said a joint report by EU banking, insurance and market watchdogs.

Cloud computing, or banks and other financial companies that use third-party providers for services, is booming, according to the report.

It is sometimes unclear how to categorize some digital financial services according to existing rules, creating uncertainty about data privacy, anti-money laundering safeguards and how much capital they must hold, according to the report.

He asked the bloc’s executive European Commission, which opened a public consultation on digital finance, to take a “holistic” view of financial services supervision.

New “oversight frameworks” may be needed to capture transactions spread across “mixed activity” groups or MAGs such as Amazon, Google, Meta’s Facebook, Apple and other Big Tech companies offering financial and non-financial services.

The failure of German payments company Wirecard demonstrated that complex arrangements within a group that provide financial and non-financial services create specific challenges for supervisors, according to the report.

“The increasing digitization and dataification of financial services requires closer cooperation between the relevant financial and non-financial authorities,” the report said.

The report said regulatory action may be justified as some social media posts are effectively advertisements.

“In securities markets in particular, the growth of digital trading platforms has coincided with new trends such as ‘social trading’ or investment advice shared on social media – which brings new opportunities but also risks.”

© Thomson Reuters 2022

Share this Article
Leave a comment

Leave a Reply

Your email address will not be published. Required fields are marked *