A Principles-based Approach to the Governance of BigFintechs

Abstract

This paper is the final paper in a series of technical papers from the United Nations Dialogue on Global Digital Finance Governance, an initiative hosted by UNDP/UNCDF. It addresses various aspects of large digital finance platforms (‘BigFintechs’), their evolution, role and governance.

Previous papers have discussed the evolution of BigFintechs (BFTs) (including BigTechs, Fintechs, digital finance platforms, global stablecoins and central bank digital currencies); BFT corporate governance; existing regulatory approaches and processes relevant to BFTs (financial, competition and antitrust, data protection, and technology and Internet regulation); and lessons from across the United Nations Sustainable Development Goals (SDGs), as well as specific policy areas such as human rights, climate change and gender. This paper builds on that body of work to present an analysis of possible approaches to the governance of the SDG impacts of BFTs.

The emergence of BigTech digital platforms and BFTs over the past 20 years reflects fundamental changes in our economies and societies around the world, in particular the impact of digitization and datafication at the heart of the Fourth Industrial Revolution. Digitization and datafication offer tremendous potential for network effects and economies of scope and scale, which have duly emerged in the context of the platform economy and more recently in the context of finance: Fintech 4.0.

It is clear today that BFTs—like digital platforms and the platform economy generally—bring both opportunities for and risks to attaining the SDGs.The question then is how best to maximize positive SDG impacts while minimizing negative impacts. The starting point is embedding awareness and understanding of the range of potential impacts of BFTs from the standpoint of the SDGs, both positive and negative, at all levels of governance, both domestic and international.

The paper begins by presenting five guiding principles any approach should seek to address. These are: (1) ensuring financial stability, financial integrity, consumer and investor protection, and market integrity; (2) developing reflexive and iterative regulation; (3) fostering responsible actors; (4) ensuring appropriate and proportional oversight and enforcement; and (5) instilling a commitment to sustainable development.

The paper then turns to structures for achieving these principles and a toolkit covering a spectrum of hard and soft law and market-based private ordering and co-regulatory approaches at the domestic, regional and international levels. The paper highlights the necessity of diverse approaches depending on the specific context and the balance between positive and negative SDG impacts, from laissez-faire to the full spectrum of regulatory approaches up to and including treatment as public utilities, break-up and prohibition.

Looking forward, international coordination will be necessary in many areas. Approaches will depend, however, on individual BFTs to balance their potential for positive and negative SDG impacts. In this respect, the paper considers existing institutions and approaches, as well as the possibility of developing new institutional structures, such as a Digital Stability Board.

In looking at the range of approaches, the main take-away is the necessity of embedding awareness of the central principles and options throughout processes, including those of the United Nations, the G20, the International Monetary Fund, the World Bank, the Bank for International Settlements, the Financial Stability Board, the Organisation for Economic Co-operation and Development, the International Telecommunication Union and others. Only by embedding an understanding of both opportunities and risks can countries, regions and the international economic system maximize benefits while minimizing the risks of BFTs.