According to a report by Cointelegraph on February 20th, the European Union's securities regulator issued a report warning the risk of large tech companies entering the financial sector.
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When the European Securities and Markets Authority (ESMA) released its 2020 Trends, Risks and Vulnerabilities report on February 19, speaking about the entry of the big tech giant (BigTech) into the financial sector:
"It has been observed that large and large technology companies may enter the financial services sector intensively, which has a potentially negative impact on consumer prices and financial stability."
However, the report also mentions some of the positive aspects of large tech companies in the financial sector. "The potential benefits include more household participation in capital markets, greater transparency and more financial inclusion," ESMA wrote in the report.
Silicon Valley ventures into finance
Large tech companies include companies like Amazon, eBay, and others that focus primarily on services that have traditionally been viewed as services other than finance. But that is changing.
Social media giant Facebook is trying to enter the financial realm, which announced its digital asset plan Libra in June 2019. However, shortly after Facebook issued a statement, US regulators stepped in, saying it was potentially risky, and used a series of red tape to restrain the project.
Prior to Facebook's announcement of Libra, the social media co-founder Mark Zuckerberg called for additional regulation of large tech companies in March 2019. CNN reported on February 19 that Zuckerberg is continuing his efforts, and has now traveled to two EU countries to push regulators to develop more guidelines on data use, privacy and other issues.
Big company, big responsibility
The ESMA report explained that such tech giants are beginning to enter the financial space with the launch of Libra-like payment solutions and other services, which may mean that online customers will face more risks.
The report states that in many cases, these companies can also leverage proprietary data generated through other services, such as social media, to tailor their products to customer preferences. These companies have the ability to replace a large part of the financial services industry.
However, this participation comes with huge risks. The report reads:
"Given the large amount of sensitive consumer information they process, and the size of their existing businesses, many of which are related to financial markets, their entry into the financial industry also poses significant risks to markets and consumers."
Cointelegraph tried to seek clarification from ESMA, but has not received any response as of press time.