Reserve Bank of India (RBI) said on Friday that Big tech companies offering financial services pose risk to financial stability as their complex intertwined operational linkages with financial institutions could lead to contagion effect and potential anti-competitive behavior.
The RBI, in its 25th Financial Stability Report said the advent of FinTech has exposed the banking system to new risks which extend beyond prudential issues and often intersect with other public policy objectives relating to safeguarding of data privacy, cyber security, consumer protection, competition and compliance with anti-money laundering policies.
Big tech companies can scale up quickly and pose risk to financial stability, which can come up from increased disintermediation of incumbent institutions, the central bank noted. "Moreover, complex intertwined operational linkages between BigTech entities and financial institutions could lead to concentration and contagion risks and issues relating to potential anti-competitive behaviour," the reports said.
Regulators and supervisors face a challenging balancing act between innovation-friendliness and managing risks to financial stability. This need more engagement of stakeholders like regulators, FinTech industry and academia to work towards common principles for management of FinTech activities, including business and revenue models, governance, conduct and risk management, the report said.