BigFinTechs and Sustainability

Updated: Dec 8, 2021

BigFintechs and Sustainability: A Necessary Convergence


Global digital finance platforms or “BigFintechs “ are weaving sectors together across the world in ways that make the breadth of their impacts on the labour conditions, environment or well being of consumers difficult to assess. Bold governance mechanisms are required to secure BigFintechs contributions to the Sustainable Development Goals according to the study "A principles-based approach to the governance of BigFintech".


The University of Hong Kong (HKU) Professor Douglas Arner laid out the frameworks and coordinated strategies they found necessary to help in the governance of digital financial platforms across the world during the launch of the UNDP-UNCDF led study.

The study is the last of the series of technical papers co-written by the HKU team led by Kerry Holdings Professor in Law Douglas Arner: Dr. Kuzi Charamba, Post-doctoral Fellow at HKU's Asian Institute of International Financial Law (AIIFL), Sangita Gazi, PhD candidate, HKU Faculty of Law, and Dr. Artem Sergeev, former Senior Research Assistant, HKU Faculty of Law.

Press Release_BigFintechPrinciples_UNDP UNCDF
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Technical Paper 3.3: A Principles-based Approach to the Governance of BigFintechs is written by Douglas Arner, Ross Buckley, Kuzi Charamba, Dirk Zetzsche and Artem Sergeev.

 

This study is part of a series of technical papers under the UNDP | UNCDF's Dialogue on Global Digital Finance Governance covering BigFintechs and their impacts on sustainability, corporate governance innovations, and BigFintechs and international governance, policymaking and the SDGs. The papers can be downloaded in the UNDP site. The papers, co-written by HKU's Kuzi Charamba, Sangita Gazi, and Artem Sergeev can also be downloaded through the following links:

 

Video highlights transcript:


Aiaze Mitha (Digital Ambassador at UNCDF):
We've been discussing many issues: We've been discussing tools we have available; We've been discussing the role of corporate governance; We've been discussing how important it is to map big Fintech impacts against SDG and ESG lenses; What's the way forward? What are the concrete steps that we should go away with that we can all take together collectively in really ensuring that BigFintechs are going to really benefit the world that we live in and the world that the next generations are going to be living in? Over to you, Doug.

Douglas Arner (Kerry Holdings Professor in Law at the University of Hong Kong):
Thanks for that and then I think you know the key point that if we look at the past two years we've seen this tremendous benefit emerging from a combination of scale and digitisation. That's one side.

The second, and I think this has been one aspect of the COVID experience, is a rapid coalescing around a focus on the importance of sustainable development. But as I think Achim (Steiner, UNDP Administrator) highlighted, very importantly, 2030 is not far away.

Framework

And I think when we look at a framework for looking at this issue, the first is to realize that digital finance is key from a standpoint of resilience to not only this crisis, but future crisis. So that's our foundation.
The second is making sure that the financial system functions. That it is able to get resources across an entire population. This is really essential from the standpoint of addressing challenges as they arise.
And the third is really thinking about how can we move the financial system beyond just resilience, access and risk to actually focusing on supporting broader development.
I think that's the sort of framework we're looking at.

Strategies

The second is really focusing in on certain strategies.

And if we think about the first of these, it's really the impact of digitisation. In some ways what we've seen is that private companies have been a way to get digital access to very large portions of the population which has had tremendous benefits. But the business model that enables this to happen is essentially based on data and services that are provided over the infrastructure that those companies are building. So it's a sort of a way we're taking advantage of the incentives of business, but at the same time, from the standpoint of the natural outcome, from the standpoint of concentration, it's something that we have to balance.

The second is around infrastructure. And at what point you move from thinking of something that this is business to this is actually a form of infrastructure and you need to be treating it differently than if it is simply a business operation. And I think that this is one of the key points as we go forward.
The third is around this idea of aggregation. How do you maximize the benefits of aggregation?
The simplest strategy has been to allow private amalgamations of data. Open Banking is an alternative. Likewise, shared resource data approaches like (those that) are being developed in China. These are different approaches to the way that one can get the benefits of data aggregation. Ideally, however, without the network sort of concentration effects, so that's our third.

Fourth is really around security. The more we digitize, the more benefits, but at the same time, the greater the risks. And I think that this is absolutely essential and that really takes us from the framework to our sort of focused strategies to the questions around dealing with individual company.

And I think we can think about this really from the international level and the domestic level. And it's also important to realize that our starting point we want to, as Jon (Frost, Senior Economist on Innovation and Digital Economy at the Bank for International Settlements) has said, encourage competition. You want to make it as easy as possible for those firms that, as we characterize “too small to care”, to enter in and improve finance, but as they get bigger and bigger as they edge towards “too big to fail”, one needs to treat those differently, both domestically but also internationally. And I think the key aspect from the standpoint of the international process is seeking to distill lessons from different experiences, and we're seeing competition between different approaches.

We're not saying that there's a single approach at this stage. But then eventually coming out with principles and standards, and certainly when we are dealing with very large-scale cross border firms, the need for a coordinated cross border approach. And of course, we've seen this with globally, systemically important financial institutions. We're seeing it now in the context of approaches to global stable coins.
Finally, if we turn to the domestic level, I think what we've all seen is very much the need for cooperation and coordination across different agencies that have different responsibilities.

And essentially the increasing approach, I think, that we're seeing is the need to build committees - councils at the domestic level that are bringing together financial regulators, data regulators, competition regulators and tech and communications regulators to try to look at how they can maximize the benefits, while at the same time continually monitoring and balancing risks. Not an easy process, but I think as we look at the scale of the opportunities, but also the scale of the challenges, there's really no other choice.
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