Digital Finance Platforms: Toward a New Regulatory Paradigm

European Banking Institute (EBI) Working Paper Series No. 58/2020

University of Luxembourg Faculty of Law, Economics & Finance WPS

University of Hong Kong Faculty of Law Research Paper No. 2020/008

23: 1 University of Pennsylvania Journal of Business Law (2020)

University of Pennsylvania Journal of Business Law, Forthcoming

68 Pages Posted: 3 Mar 2020 Last revised: 16 Dec 2020

See all articles by Dirk A. Zetzsche

Dirk A. Zetzsche

Universite du Luxembourg - Faculty of Law, Economics and Finance; Heinrich Heine University Dusseldorf - Center for Business & Corporate Law (CBC); European Banking Institute

William A. Birdthistle

Chicago-Kent College of Law - Illinois Institute of Technology

Douglas W. Arner

The University of Hong Kong - Faculty of Law

Ross P. Buckley

University of New South Wales (UNSW) - Faculty of Law

Date Written: Novermber 2020

Abstract

One of the most consequential yet unexamined developments in finance is the recent evolution of large financial technology platforms. In the first analysis of its kind, we scrutinize the world’s $89 trillion investment and asset management industry to explore the function of these systems, to consider their possible risks, and to develop a taxonomy for their regulation. This analysis is essential because these systems now play a critical role in asset management, rendering nugatory several layers of existing regulation. While the COVID-19 pandemic has caused havoc with economic activity, it has accelerated this process of digitization and concentration of financial control. The leading example of such a platform is BlackRock’s Aladdin, a system used to manage the risks relating to ten percent of the world’s investment assets and which institutional investors – as well as the U.S. government – admit they cannot operate without. Even greater concentrations of financial power are possible when Big Technology firms and finance unite. Ant Group, a spinoff of Alibaba, controls a financial ecosystem for over 1.2 billion clients – twenty-one percent of the world’s adults – covering all financial services, including payments, insurance, asset management, and deposits. Large U.S. financial and tech firms, including Facebook, Apple, and Google, are working hard to emulate Ant’s scale and scope, driving concentration into a small number of dominant digital finance platforms. Although Financial Technology is typically associated with small innovative firms, we argue that these giant digital finance platforms are already having a far greater impact on society. We identify the economic reasons for the dramatic ascendancy of these financial leviathans and propose a legal framework for mitigating their threats to national security, financial stability, consumer protection, antitrust and cybersecurity.

Keywords: FinTech, RegTech, Operating Systems, Financial Regulation, Big Data, BigTech, TechFin, Enforcement, Asset Management, Robo-Advice, Collective Investment Schemes, Mutual Funds

JEL Classification: G23, G24, G28

Suggested Citation

Zetzsche, Dirk Andreas and Birdthistle, William A. and Arner, Douglas W. and Buckley, Ross P., Digital Finance Platforms: Toward a New Regulatory Paradigm (Novermber 2020). European Banking Institute (EBI) Working Paper Series No. 58/2020, University of Luxembourg Faculty of Law, Economics & Finance WPS , University of Hong Kong Faculty of Law Research Paper No. 2020/008, 23: 1 University of Pennsylvania Journal of Business Law (2020), University of Pennsylvania Journal of Business Law, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3532975 or http://dx.doi.org/10.2139/ssrn.3532975

Dirk Andreas Zetzsche (Contact Author)

Universite du Luxembourg - Faculty of Law, Economics and Finance ( email )

Luxembourg, L-1511
Luxembourg

HOME PAGE: http://wwwen.uni.lu/recherche/fdef/research_unit_in_law/equipe/dirk_andreas_zetzsche

Heinrich Heine University Dusseldorf - Center for Business & Corporate Law (CBC) ( email )

Universitaetsstr. 1
D-40225 Düsseldorf
Germany
+49 211 81 15084 (Phone)
+49 211 81 11427 (Fax)

European Banking Institute ( email )

Frankfurt
Germany

William A. Birdthistle

Chicago-Kent College of Law - Illinois Institute of Technology ( email )

565 W. Adams St.
Chicago, IL 60661-3691
United States

Douglas W. Arner

The University of Hong Kong - Faculty of Law ( email )

Pokfulam Road
Hong Kong, Hong Kong
China

HOME PAGE: http://hub.hku.hk/rp/rp01237

Ross P. Buckley

University of New South Wales (UNSW) - Faculty of Law ( email )

Sydney, New South Wales 2052
Australia

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
1,224
Abstract Views
4,552
rank
21,063
PlumX Metrics