Policymakers, BigFintechs and the United Nations Sustainable Development Goals

This paper - part of a series from the UN Taskforce on Global Digital Finance Governance - examines existing regulatory frameworks relating to digital finance platforms - "BigFintechs" (BFTs) - and their positive and negative impacts on the United Nations Sustainable Development Goals (the SDGs), with a particular focus on regulatory initiatives in relation to or originating from developing countries. The paper begins by highlighting the significant potential of BFTs in contributing to the SDGs through financial inclusion and provision of financial services. However, BFTs also create unique risks to the financial system as a result of platform economics and tendencies toward market concentration and dominance, misuse of data and gaps in existing regulatory standards. In response to these risks and opportunities, domestic and international policymakers have developed a range of regulatory approaches to digital technology, finance and sustainable development. Most of these regulatory processes and approaches are not specifically focused on BFTs or the SDGs; they also do not specifically address issues from a developing country perspective. Further, while regulators and policymakers are now focusing on digitization and sustainability-related risks, so far there appears to be little synergy between the governance of BFTs and the pursuit of the SDGs.

To better understand the scope and limitations of existing regulatory approaches, this paper considers two aspects. First, the paper examines regulations relating to economic activities, structures and impact of BFTs, with a focus on financial, data, competition and Internet/telecoms regulations. The existing regulatory processes address some of the challenges brought by BFTs, including risks to financial stability (i.e. systemic risk considerations), market dominance and concentration, data protection and Internet/telecommunications licensing. At the same time, existing regulatory responses to BFTs are not consistent across jurisdictions, leading to problems with extraterritoriality of domestic laws and regulatory fragmentation. Further, regulators often have limited technical expertise and experience in dealing with BFTs and are grappling with providing effective answers to risks generated by BFTs.

Second, the paper examines regulatory initiatives relating to the SDGs. To date, most sustainability-related initiatives have been developed in the context of environmental, social and governance frameworks (ESG) rather than the SDGs. Our review concludes that an array of domestic and international policies has emerged to address sustainability-related risks, rather than to support sustainable development in a holistic manner. The proliferation of such different standards, however, creates regulatory uncertainty and a lack of clear standards for ESG/SDG governance. While several jurisdictions such as the EU have attempted to standardize ESG/SDG governance, there is still no coherent approach to ESG/SDG reporting and supervision. In addition, the majority of existing ESG/SDG governance standards are voluntary or insensitive to the impact of technology.

Based on the analysis of the BFT and SDG processes and regulatory approaches, we highlight the gaps that need to be addressed by relevant stakeholders. First, regulators should promote greater consistency among international and national regulatory standards. This point is particularly relevant in the context of developing countries that may struggle to comply with varying international standards and approaches. Second, considering the broad scope of BFT business models, regulatory bodies should promote greater synergy and cooperation in their work. Third, regulators in developed countries should pay greater attention to the interests and needs of developing countries to support their pursuit of sustainable development. Fourth, regulators should adopt balanced and proportional regulatory approaches for fintech companies and services to address new risks created by BFTs. Specific ways to address such gaps are discussed in Technical Papers 3.2 and 3.3.