Push to regulate big tech to create level playing field for banks
If there’s a stronger international pitch for imposing regulation on the big digital platforms than a Bank for International Settlements bulletin on August 2 – coincidentally, the same day that Square unveiled its blockbuster offer – this column is yet to see it.
It follows Commonwealth Bank chief executive Matt Comyn’s call before a parliamentary committee late last month for greater regulatory control over the escalating power of Apple in the payments system.
After various agencies passed the buck on the issue, Reserve Bank governor Philip Lowe said a review of the system could give the RBA greater regulatory power over the tech giants.
This could be achieved by an amendment to enable the RBA to regulate payment “services” instead of “systems”.
The central bank has asked King & Wood Mallesons partner Scott Farrell, who has completed a review of the payments system architecture for Treasury, to consider supporting the reform.
Any concerted lobbying push by the banking industry will await the public release of the Farrell review.
The way the banks see it, when they facilitate the purchase of a pair of shoes by a consumer from a merchant, they are subject to a vast array of regulation, such as anti-money laundering, cybersecurity and consumer protection, from which the tech platforms are largely exempt.
Also, if current payment system participants continue to cross-subsidise the costs incurred by new service providers, the business case for building new infrastructure will be weakened.
The BIS, otherwise known as the central bankers’ club, doesn’t pull any punches in its bulletin, arguing that central banks should anticipate change and formulate policy based on possible scenarios.
The reason is that network effects and the entrenchment of the platforms’ closed networks can create rapid, transformational change, with dominant firms quickly establishing a systemic footprint in the financial system.
This means it’s better to act now instead of trying to unscramble the egg when it’s too late.
The advice from the BIS is, of course, self-serving, but so is Big Tech’s argument that it’s performing a community service by introducing competition to a sector which for too long has relied on oligopolistic practices to feed off the fat of the land.
The BIS paper, led by the organisation’s head and former governor of the Bank of Mexico Augustin Carstens, says big tech poses a unique regulatory challenge because of its powerful e-commerce and social media businesses.
By leveraging the reams of data and transaction patterns of users, firms can overcome traditional barriers to entry, such as lack of size, and scale up rapidly.
The greater user activity generates yet more data, reinforcing the advantages of network effects.
Carstens says the expansion of Big Tech into financial services creates a number of policy challenges.
Some are variations on popular themes squarely in the responsibility of central banks and financial regulators, such as mitigation of financial risks, oversight of operational resilience and consumer protection.
However, assessment of big-tech resilience through a financial cycle requires more systematic monitoring and understanding of business models; for example, whether lending algorithms inject systemic bias to the detriment of financial stability.
The bulletin urges members to work more closely with competition authorities and data privacy agencies, because rules tailored for stability risks could be inadequate for the unique challenges posed by increasingly prevalent big tech firms.
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Carbon conflict
Commonwealth Bank will release its annual profit on Wednesday but one item of business has already been determined.
Climate activist group Market Forces will put forward a shareholder resolution at CBA’s annual meeting calling for information to be published annually concerning management of the bank’s fossil fuel exposure to comply with net zero emissions by 2050.
Market Forces is seeking a commitment from CBA to no longer provide financing when it will be used for new fossil fuel projects, and announce targets to reduce fossil fuel exposure consistent with net zero.
The resolution follows a report on Monday by the world’s leading climate scientists warning that the prospect of limiting global warming to 1.5C will be out of reach within 12 years at current rates of greenhouse gas emissions.
The report for the Intergovernmental Panel on Climate Change also found it was now “unequivocal” that human activity is heating the planet.
CBA will release an updated climate policy on Wednesday.
However, Market Forces said on Tuesday it had been in discussion with CBA for a couple of weeks, and recent loans to expand the fossil fuel industry demonstrated the bank fell short of the points made in the resolution.
The group said shareholder support for alignment of bank finance with the goals of the Paris Agreement had grown over the last few years from 6 per cent to 12 per cent to 24 per cent.
Twitter: @Gluyasr
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