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Parma Bains, Nobuyasu Sugimoto, and Christopher Wilson
BigTech firms are gradually entering the financial sector and becoming important service providers, particularly in emerging markets. BigTechs have entered financial services using platform-based technology to facilitate payments and more recently expanded into other areas, such as lending, asset management, and insurance services. They accumulate data from their nonfinancial and financial activities and draw on consumer data held in different parts of their business (such as via social media). BigTechs are applying new approaches to existing financial services products and services such as underwriting using big data and are also applying machine learning for their key business decisions, such as pricing and risk management across multiple financial sectors. Incumbent financial firms have also increased their reliance on BigTech firms to host core IT systems (for example, cloud-based services, which have the potential to improve efficiency and security). This rapid and significant expansion of BigTechs in financial services and their interconnectedness with financial service firms are potentially creating new channels of systemic risks. To achieve effective implementation and multiple objectives of financial regulation and supervision, a hybrid approach, combining a mix of entity- and activity-based approaches, is needed.
Parma Bains, Nobuyasu Sugimoto, and Christopher Wilson

BigTech firms are gradually entering the financial sector and becoming important service providers, particularly in emerging markets. BigTechs have entered financial services using platform-based technology to facilitate payments and more recently expanded into other areas, such as lending, asset management, and insurance services. They accumulate data from their nonfinancial and financial activities and draw on consumer data held in different parts of their business (such as via social media). BigTechs are applying new approaches to existing financial services products and services such as underwriting using big data and are also applying machine learning for their key business decisions, such as pricing and risk management across multiple financial sectors. Incumbent financial firms have also increased their reliance on BigTech firms to host core IT systems (for example, cloud-based services, which have the potential to improve efficiency and security). This rapid and significant expansion of BigTechs in financial services and their interconnectedness with financial service firms are potentially creating new channels of systemic risks. To achieve effective implementation and multiple objectives of financial regulation and supervision, a hybrid approach, combining a mix of entity- and activity-based approaches, is needed.

Parma Bains, Nobuyasu Sugimoto, and Christopher Wilson

insurance services. They accumulate data from their nonfinancial and financial activities and draw on consumer data held in different parts of their business (such as via social media). BigTechs are applying new approaches to existing financial services products and services such as underwriting using big data and are also applying machine learning for their key business decisions, such as pricing and risk management across multiple financial sectors. Incumbent financial firms have also increased their reliance on BigTech firms to host core IT systems (for example, cloud

CYNTHIA A. GLASSMAN

. European customers can buy their insurance, securities, and other financial services products from their bank. Americans cannot yet do that. Currently, there is political debate about whether that should be allowed. Perhaps the issues discussed above had to be dealt with in the European Community or, alternatively, they may be uniquely American. The United States may be able to learn from the experience of the European Community as changes are contemplated in its statutory framework for financial institutions.

International Monetary Fund. Monetary and Capital Markets Department

industry associations, should work together to develop more specific rules on the use of client information for ancillary purposes such as cross-selling of financial services products. Consideration should be given to the development of an industry complaint tracking system to collect information from all insurers and brokers on the number and types of complaints received and how they were resolved. Improvements should also be considered in the area of countering fraud . Recent new requirements provide an opportunity for the OIC to develop a centralized fraud

International Monetary Fund. Middle East and Central Asia Dept.

Republic, and Tajikistan have programs with the World Bank to develop regulations related to electronic and digital payment services, enhance public awareness of the benefits of such services, and advise private firms on rolling out mobile financial services products, with a view to promoting financial inclusion of the unbanked population as well as bringing remittance flows into the formal financial system. 9 The United Arab Emirates is among the few countries proactively introducing fintech-related regulations, including for crowdfunding and digital currencies

International Monetary Fund

secrecy, and favorable tax arrangements, within a stable and well-regulated environment. 2. By its nature, Liechtenstein’s financial sector business creates a particular money laundering risk in response to which the authorities and the financial sector firms have developed risk-based mitigating measures. Minimizing the risk of abuse of corporate vehicles and related financial services products presents an ongoing challenge, as does the identification of the natural persons who are the beneficial owners of the underlying assets or legal persons or arrangements

Wouter Bossu and Arthur Rossi

industry is heavily regulated. This led central banks and other regulators to develop three types of “facilitators” to advance innovation in their jurisdictions. Innovation hubs provide a dedicated point of contact for fintech firms to address competent authorities and provide nonbinding guidance and interpretation of the regulatory framework. 1 Regulatory sandboxes offer a controlled testing environment for new financial services, products, or business models. Of the 73 sandboxes included in a recent World Bank Group Survey, 2 39 were either hosted exclusively

International Monetary Fund

to compensate for any risk arising as a result of dealing with an applicant for business otherwise than face-to-face. 33. Much of the financial business in the IOM is conducted on a non face-to-face basis for nonresidents. IOM banking, insurance, and other financial services products are marketed globally, including through business introducers. The potentially long distribution chain may increase the exposure of IOM financial institutions to misuse for ML and FT purposes, including through layering and structuring, as they are remote from the customer and face