LONDON (Reuters Breakingviews) - The Bank of England is extending a wary welcome to Big Tech. Governor Mark Carney on Thursday laid out the ways the UK central bank might adapt to rapid shifts in finance. Embracing technology that helps lower costs and boost competition makes sense. Large companies like Facebook, though, deserve to be greeted with open eyes.
Keeping up with innovation is always a challenge for the 324-year-old institution. Digital payments are displacing cash, while upstarts are using mobile phones and artificial intelligence to pick off some of banks’ most profitable niches. That is one reason why Carney asked senior BoE adviser Huw van Steenis to lead a review of the UK financial system. His report, published on Wednesday, offers a clear analysis of the challenges and some sensible remedies.
Van Steenis recommends opening up the BoE’s financial infrastructure to new players to speed up payments and lower the cost of cross-border transfers. The most eye-catching proposal is to let upstarts deposit funds directly at the central bank – a privilege previously reserved for established lenders. He also advocates the use of cloud-based data storage, and encourages small- and medium-sized enterprises to share more data to improve their chances of securing credit.
Making financial services cheaper and more widely available is overdue. A decade of post-crisis regulation, while necessary, has helped to entrench the biggest banks and insurers. Carney also has an eye on preserving the BoE’s relevance as Brexit dents the City of London and Britain’s international reputation.
Yet big technology companies pose a bigger challenge. The likes of Amazon and Google-owner Alphabet already control vast troves of information about their users. Forcing banks to share data could help tech companies pick off the most lucrative customers. One oligopoly would replace another.
Silicon Valley firms also pose a direct challenge to existing regulation. When Facebook on Monday unveiled ambitious plans for a new global electronic currency, libra, it made no mention of how it would enforce existing money-laundering rules, talking instead of “collaborating and innovating” with “regulators and experts”.
That fuzzy approach will receive little sympathy from financial watchdogs, which have seen how social media has upended regulation of news and entertainment. Carney on Thursday promised libra “an open mind but not an open door”. His colleagues will need to keep their eyes open too.
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