Facebook's Foray to Cryptocurrency poses new risks to banks
The Bank of International Settlements (BIS) has warned that the financial services offered by major technology companies such as Facebook, Google and Amazon can generate new risks to the banking sector.
BIS – an international financial institution in Switzerland owned by 60 of the world's central banks – published a report describing its attitude on June 23.
Hot on the helm of Facebook's recently announced crypto competition, Libra, said the BIS said that while major technology companies foray in finance could bring efficiencies and broaden financial inclusion, regulators must step up their efforts to reduce the new and complex risks involved.
According to BIS, large technology banks have extensive user base, access to user data and diverse business models the potential to quickly change the financial sector. Their low-cost structuring is highly scalable, and the network structure of widely-visited platforms can help promote economic inclusion in populations that remain underbased, it notes.
However, BIS warns, "The many benefits that provide benefits also have the potential to generate new risks and costs associated with market power."
BIS claims that large-scale companies introduce both known ̵[ads1]1; as well as new and unknown – dangers to the country's financial services.
Amongst the established issues, it notes the risk of financial stability and consumer protection derived from tech giants who "have the potential to rapidly shed as systematically relevant financial institutions" – thus disturbing the traditional banking sector and existing financial intermediation structure.
The report notes that such firms effectively utilize a "data network activity loop" that could well accelerate the success of their performance in fine NCE, but this business model raises new and challenging regulatory challenges – especially competition and data security issues.
Given that companies such as Facebook are traditional regulatory perimeter and national boundaries, BIS requires national and international coordination between the authorities to "Ensure equal competition between big techs and banks."
As previously reported, Facebook published the White Paper for its long-awaited crypto competition and blocking-based financial infrastructure project, Libra, on June 18.
Up until now, international reactions to Libra have been mixed, including ambivalent US Federal Reserve chairman comments, and a statement by the chairman of the Russian State Duma Committee on Financial Markets that the symbol will not be legalized in Russia.
Meanwhile, the Governor of the Reserve Bank of Australia (RBA) has reduced the likelihood of Libra being able to achieve broad unhealthy issues before relevant regulatory issues are addressed.
