EU supervisors call for swift action to catch up with digital finance

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LONDON, Feb 7 (Reuters) – Swift action is needed to update the way cross-border financial services are scrutinized and consumers protected as the sector goes digital with ‘Big Tech’ playing an increased role, people said on Monday. European Union regulators.

People are taking to social media and using smartphones to buy and sell stocks, move money into bank accounts and make payments, a trend accelerated by the COVID-19 pandemic, leaving regulators to catch up .

“Digital finance has unlocked new synergies between financial and non-financial activities that potentially introduce systemic risk to the financial services market,” says a joint report from EU banking, insurance and market watchdogs .

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Cloud computing, or banks and other financial firms using outsourced service providers, is booming, according to the report.

It is sometimes unclear how to classify some digital financial services under existing rules, creating uncertainty about data privacy, anti-money laundering safeguards and the amount of capital they should hold, according to the report.

He called on the bloc’s executive European Commission, which has opened a public consultation on digital finance, to take a “holistic” view of financial services supervision.

New “oversight structures” may be needed to capture transactions spread across “mixed activity” or MAG groups, such as Amazon, Google (GOOGL.O), Meta’s Facebook (FB.O), Apple (AAPL .O) and other Big Tech companies offering financial and non-financial services.

Chart of ESAs on MAGs

The crash of German payments company Wirecard demonstrated that complex arrangements within a group providing financial and non-financial services create specific challenges for supervisors, according to the report.

“The increasing digitization and datafication of financial services require closer cooperation between relevant financial and non-financial authorities,” the report says.

The report says regulatory action may be warranted given that some social media posts are actually advertisements.

“In securities markets in particular, the growth of digital trading platforms has coincided with new trends, such as ‘social trading’ or shared investment advice on social media, which brings new opportunities but also risks.

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Reporting by Huw Jones; Editing by Toby Chopra and Louise Heavens

Our standards: The Thomson Reuters Trust Principles.

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