The EU’s financial regulator released a lengthy 2020 report, which includes the dangers of big tech companies entering finance.
The European Union’s securities regulator has put out a report warning of risks of Big Tech’s entrance into finance.
“The high level of market concentration typically observed in BigTech may get carried into financial services, with potentially adverse impacts on consumer prices and financial stability,” the European Securities and Markets Authority, or ESMA, said of Big Tech companies entering finance, as part of its 2020 Trends, Risks and Vulnerabilities report released on Feb. 19.
The report did, however, also mention a few positives of Big Tech in finance. “Prospective benefits include greater household participation in capital markets, greater transparency and increased financial inclusion,” the ESMA text reads.
Silicon Valley takes on finance
Big Tech companies include the likes of Amazon, eBay, and others that focus primarily on services outside what has traditionally been considered finance. But that has been changing.
Social media giant Facebook looked to pry its way into finance in June 2019, when the social media company published plans for its Libra digital asset. Shortly after Facebook’s announcement, however, U.S. regulators stepped in, seeing the potential risks involved and covering the project with red tape.
Prior to Facebook’s Libra announcement, the social media entity’s co-founder Mark Zuckerberg called for additional regulation on Big Tech in March 2019. Continuing his quest, travelling to two EU nations, Zuckerberg is once again pushing for additional guidelines from regulators regarding data usage, privacy and the like, CNN reported on Feb. 19.
Big Tech, big responsibility
ESMA’s report explained that such tech giants are beginning to enter the financial space, launching payment solutions and other offerings, similar to Libra, which could mean added risk for online customers.
“In many cases, these companies can also use proprietary data generated through their other services, such as social media, to tailor their offerings to customer preferences,” the report said, including that such companies possess the power to overtake a big chunk of the financial services industry.
Such involvement, however, comes with massive risk. “Given the vast amount of sensitive consumer information they handle and the scale of their existing operations (many of which are interconnected with financial markets) their entry into finance also poses distinct risks to markets and consumers,” the report said.
Cointelegraph reached out to the ESMA for clarification but received no response as of press time. This article will be updated accordingly should a response come in.
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