FinTech, Financial Regulation, Antitrust, Data Protection, Financial Governance
Over the past 150 years, finance has evolved into one of the world’s most globalized, digitized, and regulated industries. Digitalization has transformed finance, but also enabled new entrants over the past decade in the form of technology companies, especially FinTechs and BigTechs. As a highly digitalized industry, incumbents and new entrants alike are increasingly pursuing similar approaches and models, focusing on the economies of scope and scale typical of finance and the network effects typical of data. Predictably, this has resulted in the emergence of large digital finance platforms. We argue that the combination of digitalization, new entrants (especially BigTechs), and the evolution of dominant digital finance platforms—which we describe as FinTech 4.0 and mark as beginning in 2019-2020—brings both massive benefits and an increasing range of risks to growth and broader sustainable development. The emergence of concentration and dominance in digital finance poses challenges for societies and regulators around the world that, thus far, are most clearly evident in the United States and China. Existing regulatory frameworks for finance, competition, data, and technology are not designed to comprehensively address the challenges these trends pose. Instead, we need to build new approaches, domestically and internationally, to maximize the benefits of network effects and economies of scope and scale in digital finance. At the same time, we need to monitor and control the attendant risks of concentration and dominance in digital finance across existing regulatory silos. We argue for a principles-based approach that brings together regulators responsible for different sectors and functions, both overseeing on a functional activities- based approach but also – as scale and interconnectedness increase – addressing specific entities as they emerge. This graduated proportional hybrid approach is appropriate both domestically in the United States, China, and elsewhere, as well as for cross-border groups, building on the experiences of supervisory colleges and supervision developed for Globally Systemically Important Financial Institutions (G-SIFIs) and Financial Market Infrastructures (FMIs). This will need to be combined with an appropriate strategic approach to data in finance, to enable the maximization of the benefits of data aggregation while constraining related risks of concentration and dominance.
Douglas Arner, Ross Buckley, Kuzi Charamba, Artem Sergeev & Dirk Zetzsche, Governing FinTech 4.0: BigTech, Platform Finance, and Sustainable Development, 27 Fordham J. Corp. & Fin. L. 1 (2022).
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