VI. Annex 1: Definitions
Activity-based regulation: applied to any person or entity that engages in certain regulated activities, for example, facilitating the buying and selling of investments or operating lending activities.
BigTech: platform-based business model focused on maximizing interactions between a large number of mainly retail users. BigTechs are usually large technology conglomerates with extensive customer networks and core businesses across markets, for example, in social media, internet search, and e-commerce.
Entity-based regulation: applied to licensed entities or groups that engage in regulated activities (such as deposit taking, payment facilitation, lending, and securities issuance). Requirements are imposed at the entity level and may include governance, prudential, and conduct requirements.
Fintech: technologically enabled innovation in financial services that could result in new business models, applications, processes, or products with an associated material effect on financial markets and institutions and the provision of financial services.
Fintech start-up or Fintech-driven entity: firms that are primarily driven by technology-enabled innovation in financial services.
Home authority: the financial regulatory authority that oversees the jurisdiction where a BigTech entity has its headquarters.
Host authority: the financial regulatory authority that oversees the jurisdiction where a BigTech entity offers its services but does not house its headquarters.
Hybrid regulation: combines elements of both activity- and entity-based regulation depending on the nature of each jurisdiction’s regulatory structure and whether the jurisdiction houses the headquarters of a firm or hosts its activities.
VII. References
Adrian, Tobias. 2021. “BigTech in Financial Services.” Speech to the European Parliament FinTech Working Group, International Monetary Fund, Washington, DC, June 16, 2021. https://www.imf.org/en/News/Articles/2021/06/16/sp061721-bigtech-in-financial-services.
Bank of England. 2020. “How Reliant Are Banks and Insurers on Cloud Outsourcing?” January 17, 2020. https://www.bankofengland.co.uk/bank-overground/2020/how-reliant-are-banks-and-insurers-on-cloud-outsourcing.
Capgemini and Efma. 2020. World InsurTech Report 2020. https://worldinsurtechreport.com/resources/world-insurtech-report-2020/.
Carriere-Swallow, Yan, and Vikram Haksar. 2019. “The Economics and Implications of Data: An Integrated Perspective.” IMF Departmental Paper 19/16, International Monetary Fund, Washington, DC.
Crisanto, Juan Carlos, Johannes Ehrentaud, and Marcos Fabian. 2021. “BigTechs in Finance: Regulatory Approaches and Policy Options.” FSI Briefs No. 12, Financial Stability Institute, Basel, Switzerland. https://www.bis.org/fsi/fsibriefs12.pdf.
Feyen, Erik, Jon Frost, Leonardo Gambacorta, Harish Natarajan, and Matthew Saal. 2021. “Fintech and the Digital Transformation of Financial Services: Implications for Market Structure and Public Policy.” BIS Papers No. 117, Bank for International Settlements, Basel, Switzerland. https://www.bis.org/publ/bppdf/bispap117.pdf.
Financial Stability Board. 2019. BigTech in Finance: Market Developments and Potential Financial Stability Implications. Basel, Switzerland. https://www.fsb.org/wp-content/uploads/P091219–1.pdf.
Financial Stability Board. 2020a. BigTech Firms in Finance in Emerging Market and Developing Economies. Basel, Switzerland. https://www.fsb.org/wp-content/uploads/P121020–1.pdf.
Financial Stability Board. 2020b. Regulation, Supervision and Oversight of “Global Stablecoin” Arrangements. Basel, Switzerland. https://www.fsb.org/wp-content/uploads/P131020–3.pdf.
Haksar, Vikram, Yan Carriere-Swallow, Emran Islam, Andrew Giddings, Kathleen Kao, Emanuel Kopp, and Gabriel Quiros. 2021. “Toward a Global Approach to Data in the Digital Age.” IMF Staff Discussion Note 2021/005, International Monetary Fund, Washington, DC.
International Monetary Fund. 2014 “Risk Taking, Liquidity, and Shadow Banking: Curbing Excess While Promoting Growth”, Global Financial Stability Report Chapter 2, Washington, DC. https://www.imf.org/en/Publications/GFSR/Issues/2016/12/31/Risk-Taking-Liquidity-and-Shadow-Banking-Curbing-Excess-While-Promoting-Growth.
International Monetary Fund and The World Bank. 2018. “The Bali Fintech Agenda.” IMF Policy Paper, Washington, DC. https://www.imf.org/en/Publications/Policy-Papers/Issues/2018/10/11/pp101118-bali-fintech-agenda.
Pujazon, Daniel, and Brad Carr. 2020. “Cloud Computing: A Vital Enabler in Times of Disruption.” Institute of International Finance, Washington, DC. https://www.iif.com/Portals/0/Files/content/32370132_iif_cloud_computing_resilience.pdf.
Richter, Felix. 2021. “Amazon Leads $150-Billion Cloud Market.” Statistica, July 5, 2021. https://www.statista.com/chart/18819/worldwide-market-share-of-leading-cloud-infrastructure-service-providers.
US President’s Working Group on Financial Markets. 2021. “Report and Recommendations on Stablecoins.” https://home.treasury.gov/news/press-releases/jy0454.
This note was prepared by Parma Bains, Nobuyasu Sugimoto and Christopher Wilson, with inputs from Fabiana Melo and Anastasiia Morozova (all MCM).
International Monetary Fund and The World Bank staff developed the agenda in 2018 (International Monetary Fund [IMF] and The World Bank 2018).
Promising work on data policy has begun (Carriere-Swallow and Haksar 2019; Haksar and others 2021).
The Financial Stability Board defines BigTech as “large companies with established technology platforms” (Financial Stability Board [FSB] 2019). In addition, the Financial Stability Institute has defined BigTech as “large technology companies” (Crisanto, Ehrentaud, and Fabian 2021).
For example, the 2021 acquisition of Pring, a Japanese payments processor, is the latest in a line of payments acquisitions, including Softcard, Zetawire, and TxVia, providing Alphabet with a stronger presence in payments networks and payments technology.
For further reading regarding BigTech expansion into financial services, see two publications by the FSB: BigTech in Finance: Market Developments and Potential Financial Stability Implications (FSB 2019) and BigTech Firms in Finance in Emerging Market and Developing Economies (FSB 2020).
For a comprehensive discussion of cloud employment in financial services, see Cloud Computer: A Vital Enabler in Times of Disruption (Pujazon and Carr 2020).
Some regulators are exploring interim measures to overcome the inherent limitations of the activity-based approach. For example, UK Financial Conduct Authority (FCA) conducts market studies across industry price caps, which can be an alternative to enforcement.
Financial Action Task Force (FATF) Recommendations, which are the international standards on AML/CFT, apply to institutions that engage in a range of activities, including deposit taking, lending, and money or value transfers. BigTechs will be captured if they carry out the covered activities. In practice, however, many jurisdictions may not yet subject BigTechs that engage in the covered activities to AML/CFT obligations due to the rapid evolvement of the sector and the business model. Such gaps may give rise to regulatory arbitrage.