Regulators should closely monitor the role of BigTech in finance, according to a new paper from the Bank for International Settlements (BIS).

The paper highlighted how “utilising user data from their existing businesses” allows BigTech firms “to scale rapidly and establish a substantial presence in financial services very quickly.”

BIS claims this could cause “excessive concentration of market power and a possibly systemic footprint in the financial system” and that regulating this effectively will “necessitate more systematic monitoring and understanding of BigTech business models.”

Alibaba and Tencent were highlighted as examples of BigTech’s potential to rapidly achieve market dominance in finance.

The two BigTech firms now jointly account for 94 per cent of the Chinese mobile payments market according to the paper, quickly growing from a minimal market share in 2015.

The paper highlighted biased machine learning algorithms and widely adopted “stablecoins” that could dominate payments systems as emerging potential issues.

The BIS suggested more collaboration between central banks and data governance regulators, despite the fact data governance is traditionally outside of their remit.

The body also suggested a movement away from the traditional “activities-based approach where providers must hold licences for specific business lines” as this is “likely to fall short of an adequate response to these policy challenges”.

The BIS emphasised the importance of “coordination among different financial and non-financial regulators” as the “current framework does not address the potential (possibly global) systemic impact of BigTech operations.”

In addition, the BIS highlighted that much of the existing regulation designed to limit the power of BigTech focuses on competition, rather than wider systemic impact.

“The entry of big tech firms into the payment system has underscored how rapidly digital innovation can impinge on central banks’ traditional concerns: sound money and the smooth functioning of the payment system,” said the paper. “Given the multi-faceted nature of the public policy challenges that extend to competition and data governance imperatives, central banks and financial regulators should invest with urgency in monitoring and understanding these developments.”
“In this way, they can be prepared to act quickly when needed.”

It added: “Cooperation with other domestic authorities and with counterparts in other jurisdictions will be important in this regard.”

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