The fast-paced growth of big techs in finance could pose risks to financial stability. On the one hand, the phenomenon of fragmentation of financial operations, to which this development contributes, may lead to an increase in traditional financial participants’ dependency on the services offered by big techs, raising operational resilience concerns for the entire industry. On the other hand, the growth of these groups’ activities, particularly in the provision of non-bank lending, whether directly or through distribution, possibly combined with payment activities, asset management activities or crypto-asset services, could open up new vectors for the contagion of financial risk to the rest of the economy, owing to the multiple sources of interconnectedness with the financial world and the real economy.

The EU has been able to provide a swift response to a number of key resilience and competition issues, notably through the Digital Operational Resilience Act (DORA) and the Digital Market Act (DMA). Beyond these essential aspects, however, regulators must ensure that the risks to financial stability posed by the emergence of these players are properly understood and managed. In this respect, several gaps remain in the current regulatory framework that call for adjustments:

• In the case of groups that predominantly conduct non-financial activities, prudential consolidation regimes, where they exist, can easily be circumvented. A fragmented growth strategy can thus prevent supervisors from having an exhaustive view of all the activities carried out by a single group, and of the potential interdependencies between financial and ancillary activities. This lack of a comprehensive view makes the conduct of supervisory tasks particularly complex. In particular, it poses challenges for the calibration of potential micro-prudential measures, and it provides groups with opportunities to implement banking maturity transformation schemes without the associated constraints, raising legitimate concerns as regards equal treatment with traditional regulated players ;

• In a digitised world, the lack of a harmonised European regime governing credit granting opens up opportunities for arbitrage that can easily be taken advantage of by these players, who can establish their activities in places where regulatory constraints are weaker. Yet, the failure of big tech players providing credit services on a large scale could affect financial stability, given their numerous interconnections with financial partners and their potential links with savers;

• The current regulatory framework is not necessarily suited to situations in which the balance of power with commercial partners is reversed, which could lead to a loss of control and autonomy for financial institutions in the event that big tech partners become essential to the distribution of financial products and services.

In order to provide a better framework for the development of big techs in the financial sector and reconcile the need to preserve innovation capacity and financial stability imperatives, it would therefore appear necessary to supplement the responses already provided by the EU in terms of operational resilience and competition with a financial component.

As part of the debate that is already underway at both international and European level, this discussion paper sets out two main avenues for regulatory change which could be implemented sequentially and proportionately:

1. Strengthening and harmonising the sector-specific rules governing the activities that big techs develop in particular. This objective can be broken down into two short-term priorities: i) firstly, the introduction of prudential requirements at consolidated level for payment services and electronic money activities, in order to have reliable and up-to-date information available on all these groups and their activities at European level; ii) secondly, the introduction of a European regime covering non-bank lending, which is currently fragmented between various national regimes, in order to bolster the financial soundness of these institutions and limit the potential for regulatory arbitrage as regards the groups these entities belong to.
2. Requiring mixed activities groups to cluster their significant financial and ancillary activities within a dedicated structure, in order to allow for consolidated supervision and, where appropriate, where the combined financial activities of the group presents risks that are similar in nature to those of a credit institution, to allow for banking rules to apply to the entire financial subgroup.

Far from hampering the capacity for innovation of big tech groups, these regulatory changes are likely to boost them by providing a stable and harmonised legal framework.

This document is divided into four main sections: firstly, it describes how big techs have gradually entered the financial services market, and how this trend could increase in the future. It then outlines the risks to financial stability associated with their growth and highlights the limitations of the existing regulatory framework. Lastly, it sets out a series of regulatory proposals that would contribute to better understand and contain these risks, without stifling these players’ innovation capabilities.