The European Central Bank (ECB) has expressed concern over the lack of a European competitor capable of challenging the dominance of U.S. tech giants in the cloud services sector.
In its response to a European Commission consultation regarding digital financial services, the ECB noted the critical need to reassess the reliance of European financial institutions on non-EU providers for essential services and technical infrastructures, especially in cloud computing. The ECB highlighted that the absence of robust EU-based competitors could lead to dependencies on a limited number of non-EU providers, raising issues of concentration at both the entity and systemic levels.
While the ECB has championed the establishment of an EU bank-backed initiative to rival American card networks like Mastercard and Visa, it finds itself with limited influence in cloud services as many banks increasingly depend on platforms like Amazon Web Services, Microsoft Azure, and Google Cloud for their essential applications.
The entry of major tech firms into the financial services landscape is prompting a re-evaluation of supervisory frameworks, adhering to the principle of “same activity, same risks, same supervision and regulation.” The ECB warns that the rapid market penetration by Big Tech companies could result in significant concentration risks. Furthermore, operational failures or cyberattacks targeting these firms could pose systemic threats to the financial system, thereby heightening financial stability risks.
The bank stated, “The increasing presence of technology companies in the financial sector and their sophisticated service delivery methods may necessitate an expansion of the regulatory framework. This could involve complementing the current entity-based regulations with an activity-based approach.”
Additionally, the ECB emphasized the need for increased scrutiny in several areas: the growing use of artificial intelligence (AI) and distributed ledger technologies, as well as sustainability issues related to the escalated energy consumption within the digital marketplace.
The ECB warned that the current scarcity of AI specialists can lead to over-reliance on third-party providers, which introduces various co-sourcing and outsourcing risks, similar to those seen in the cybersecurity domain. It also noted that specialized training in AI techniques and data labeling requires significant resources and effort, compounded by a lack of adequately trained supervisory personnel.
On sustainability, the ECB supports the creation of a global monitoring and reporting framework aimed at assessing the environmental impact of financial institutions, including considerations of their supply chains.