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CFPB director Chopra says FSOC must 'seriously consider' big tech oversight

Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra thinks the Financial Stability Oversight Council (FSOC) needs to seriously consider regulating big tech firms.

Chopra, who is a member of FSOC, the financial oversight board led by the Treasury Secretary, told Yahoo Finance Live in an interview he's concerned the financial industry's reliance on cloud services provided by big tech firms pose risks that could interrupt payment systems.

"You really worry that if something were to happen, could it really take down a lot of core financial infrastructure, and what might be the consequences of that for the economy and society?" Chopra said.

"There is so much concentrated in a few major cloud providers. So ultimately there needs to be a look at resilience, but also financial stability. And in as much that the financial regulators need to take action, I think we have to seriously consider that."

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In October 2021, the CFPB ordered six tech firms — Amazon (AMZN), Apple (AAPL), Facebook (META), Google (GOOGL), PayPal (PYPL), and Square (SQ) — to provide information about their business practices, including data collection, policies for removing individuals from platforms, and policies for monitoring fraud and addressing consumer disputes.

The bureau is also looking at Chinese payment platforms WeChat and Alipay.

WASHINGTON, UNITED STATES - DECEMBER 15: Rohit Chopra, Director of the Consumer Financial Protection Bureau, testifies before the Senate Committee on Banking, Housing, and Urban Affairs committee during a hearing on Capitol Hill in Washington, D.C., on Thursday, December 15, 2022. (Photo by Sarah Silbiger for The Washington Post via Getty Images)
Rohit Chopra, Director of the Consumer Financial Protection Bureau, testifies before the Senate Committee on Banking, Housing, and Urban Affairs committee during a hearing on Capitol Hill in Washington, D.C., on Thursday, December 15, 2022. (Photo by Sarah Silbiger for The Washington Post via Getty Images) (The Washington Post via Getty Images)

With the rapid adoption of payment apps and services, Chopra says there are questions around how some services decide to kick a merchant or user off the platform, or whether they're collecting data through our phones to move towards personalized pricing.

"We have also noticed that, for example, on the Apple devices, only Apple Pay is allowed to use that near-field communication on the device," said Chopra.

"We hear from other potential competitors, even financial companies, they want to start their own competing apps, but they can't easily break in because they can't always use that tap function."

"When you can know every single transaction that someone has spent, that's really a map of their mind and their financial life. And I think people want to make sure that that is safe and secure and only shared when they want it to be."

While online payment systems from the likes of Venmo to Apple Pay have gained popular traction with consumers, regulators are watching stablecoins to understand if they could scale quickly. Stablecoins are cryptocurrencies whose value is pegged to a fiat currency, such as the dollar.

When asked whether FSOC should designate stablecoins as a systemic risk, Chopra said "at a minimum, that could provide a bit more visibility into what is backing these stablecoins."

In the midst of three U.S. bank failures last month, the largest U.S. stablecoin issuer, Circle, broke its peg to the dollar briefly before recovering.

By law, FSOC can designate certain payment activities, payment clearing, and settlement as either systemic or likely to become systemic.

Circle logo is seen in this illustration taken March 31, 2023. REUTERS/Dado Ruvic/Illustration
Circle logo is seen in this illustration taken March 31, 2023. REUTERS/Dado Ruvic/Illustration (Dado Ruvic / reuters)

In November 2021, the President's Working Group on Financial Markets recommended FSOC look at designating certain stablecoin activities as systemically important or those that are likely to become systemically important.

House Financial Services Committee Chair Patrick McHenry and Ranking Member Maxine Waters are expected to soon introduce legislation to regulate stablecoins.

"I think Facebook's Libra proposal from several years ago was a huge wake up call to regulators around the world that if some sort of virtual currency or stablecoin was on a big tech network, it could rapidly become something that is very big and that is something we would need to be prepared for," Chopra said.

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