The RBI raised three primary concerns about big tech companies including the latter's potential to become dominant players in the financial services sector. In its biannual Financial Stability Report released yesterday, the Reserve Bank of India (RBI) has raised concerns around the involvement of big tech companies in financial services. While acknowledging that Big Tech offers a range of digital services with a substantial footprint in payments, banking, asset management crowdfunding, and insurance of advanced and emerging market economies, and also "the promise of supporting financial inclusion and generating lasting efficiency gains", these companies also raise important policy issues like privacy, cybersecurity, maintaining a level playing field with banks, operational risks, the challenge to anti-trust rules, and too-big-to-fail issues, the RBI said in its report. The concerns Specifically, the report pointed out, there are at least three challenges from Big Tech: They straddle many different (non-financial) lines of business with sometimes opaque, overarching governance structures. They have the potential to become dominant players in financial services. Big tech companies are generally able to overcome limits to scale in financial services provision by exploiting network effects. Suggestions To tackle these concerns, the report further recommends that central banks and financial regulators use a blend of activity and entity-based prudential regulation. Along with this, it adds that international cooperation is also important with increasingly internationalised borders of the digital economy. Activity-based regulation means imposing a set of rules on all players offering a particular service while entity-based prudential regulations mean imposing a…
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