Big changes for BigTech? Financial regulators sharpen their focus
18 November 2020
Financial services policymakers have been grappling with the impact of BigTech firms entering financial services for several years. BigTech firms’ unparalleled access to consumers and their data, technological sophistication, size and resources mean they can have a significant impact on the market.
Until now the general position of regulators has been ‘same risk, same regulation’, meaning where BigTech firms provide financial services, which has so far been largely in payments in the UK, they should be authorised and regulated in the same way as traditional providers. But BigTech firms interact with consumers of financial services in many ways, and there are signs policymakers in the UK are starting to consider how the regulatory framework needs to develop.
Given the impact of COVID-19 on the use of online services and on consumer vulnerability, the Financial Conduct Authority (FCA) has turned its focus to online platforms (identifying Google specifically) and their duty to ensure financial promotions on their platforms are legal. A financial promotion, described as an invitation or inducement to engage in investment activity, can only be approved or communicated in the UK if it is communicated or approved by an authorised firm or falls within an exemption from the Financial Promotions Order (FPO).
The FCA and Her Majesty’s Treasury (HMT) are concerned by potential loopholes used by some regulated firms making such approvals on behalf of unregulated firms. This was made clear in both a recent consultation paper released by HMT and the FCA’s 2019/2020 Perimeter Report which set out a number of proposals to enhance the current regime.
The Perimeter Report is of particular significance to online platforms. This is because the FCA has indicated that such companies can no longer sit back and rely on the providers of financial services to ensure financial promotions are communicated legally. Instead, the FCA believes online platforms should bear liability for financial promotions passed on “at least to the same extent as traditional publishers of financial promotions”.
This would mean technology firms would be subject to a requirement to ensure any financial promotion communicated on its online platform had first been approved by an authorised person or fall within the scope of an FPO exemption. The number of firms seeking to advertise on online platforms means achieving this may prove a compliance challenge requiring investment in technology to verify the identity of firms seeking to undertake financial promotions and that the financial promotion has been adequately approved or is exempted. It may also mean online platforms have to seek warranties and indemnities before adding firms making financial promotions to their search databases.
The FCA and HMT are considering whether the FCA needs new powers over firms such as Google. At this stage, what these powers might look like is unclear. Nonetheless, given the increased regulatory attention on BigTech and the FCA’s ongoing focus on online scams, firms that may be impacted should start considering what steps they can take to prepare for additional regulatory requirements, such as the FPO. The FCA’s focus on financial promotions may just be an early example of a broader shift in focus from financial services policymakers in the UK and internationally towards BigTech.