30 September 2020
ECB warns against growing influence of non-European big techs on financial system
The European Central Bank (ECB) once again warns for the influence that large companies from outside the European Union (EU) have on the European financial system. The ECB refers to the fact that banks are dependent on technology partners from outside the EU. According to the regulator, the influence of these players is too big, and this is a worrying development. It concerns big techs such as Google and Amazon that not only focus on new payment solutions but also offer cloud services used by banks.
In response to an advice of the European Commission on digital financial services – which can be found in this report – the ECB says: “When EU financial service providers increasingly rely on (critical) services offered to them by non-EU technology firms, EU sovereignty with regard to those services (for example the ability to regulate and supervise those non-EU service providers) decreases.”
The ECB believes that big techs can gain a lot of market share in a short period of time. According to the regulator, this leads to systemic risks: “Big tech companies have the potential to quickly gain a significant market share, which could lead to serious concentration risks and, in the event of operational failures and targeted cyberattacks, could have a systemic impact on the financial system as a whole, thus increasing financial stability risks.”
According to the ECB, the arrival of big techs in the financial services sector is encouraging a reconsideration of supervision under the guise of equal treatment. “Our aim is to maintain a level playing field in financial services”, the institution states. “Our guiding principle is ‘same activity, same risks, same supervision and regulation’. Therefore, the evolving business models and the application of new technologies are being monitored with regard to the related risks and banks’ risk management processes.”
The ECB further stresses the need to further clarify and adapt the regulatory framework to the new digital reality in order to maintain and strengthen the level playing field of the EU financial system. “Should big tech companies decide to enter financial services on a large scale, and especially into the retail market, it has to be ensured that risks associated with their activities are appropriately captured and addressed in the regulatory framework.”
It is not the first time that the ECB warns against the dominant position of big techs from the United States and China. Earlier, Yves Mersch, member of the Executive Board of the ECB, also wondered why there are no European companies competing in the battle for global payment solutions. According to him, Europe is largely dependent on non-European systems, such as PayPal, for cross-border (card) payments and the reason for this is that there is still no European payment system for the whole continent, partly because European banks mainly focus on serving their national markets.
In the development of new payment services, this must change. Mersch: “To protect the integrity of European payment services, we need to work on user-friendly pan-European solutions. What we want to prevent is an integration of payment solutions with non-European countries that goes against European standards. European citizens demand pan-European services that are safe and efficient. Although non-European companies comply with our legislation and use our payment infrastructure, they are not domiciled in Europe. We must be aware that external regulations may affect the operation of these companies and may therefore disrupt payments between European businesses. Unfortunately, in today's geopolitical environment, this risk is not as small as they used to be and therefore must be taken seriously by European policy makers. Time is short.”