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BigTech in finance: Market developments and potential financial stability implications
This report considers the financial stability implications of BigTech firms as they expand into offering financial services. Their entry into finance has numerous benefits, including the potential for greater innovation, diversification and efficiency in the provision of financial services. They can also contribute to financial inclusion, particularly in emerging markets and developing economies, and may facilitate access to financial markets for small and medium-sized enterprises.
However, BigTech firms may also pose risks to financial stability. Some risks are similar to those from financial firms more broadly, stemming from leverage, maturity transformation and liquidity mismatches, as well as operational risks.
Third-party dependencies in cloud services: Considerations on financial stability implications
Financial institutions have used a range of third-party services for decades, and many jurisdictions have in place supervisory policies around such services. Yet recently, the adoption of cloud computing and data services across a range of functions at financial institutions raises new financial stability implications.
Cloud services may present a number of benefits over existing technology. By creating geographically dispersed infrastructure and investing heavily in security, cloud service providers may offer significant improvements in resilience for individual institutions and allow them to scale more quickly and to operate more flexibly. Economies of scale may also result in lower costs to clients.
However, there could be issues for financial institutions that use third-party service providers due to operational, governance and oversight considerations, particularly in a cross-border context and linked to the potential concentration of those providers. This may result in a reduction in the ability of financial institutions and authorities to assess whether a service is being delivered in line with legal and regulatory obligations.
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