Big tech in finance? There is a controller for that.

The Amazon Web Services (AWS) logo is seen at the SIBOS banking and finance conference on October 19, 2017 in Toronto, Ontario, Canada. REUTERS/Chris Helgren

WASHINGTON, Aug 1 (Reuters Breakingviews) – Tech companies are riding high on consumer finance, but they don’t face the kind of regulation that would frustrate their old-world rivals. That could change, though no single financial regulator controls Apple ( AAPL.O ), Amazon.com ( AMZN.O ) or Facebook owner Meta Platforms ( META.O ). It all hinges on the views of a panel of regulators known as the Financial Stability Oversight Council.

When a company like Apple decides to offer financial services, the potential impact is huge. Get the latest iPhone maker’s buy-now-pay-later service. The six-week stay starts with a loan and a $1,000 borrowing limit. But unlike the Apple-branded card, which is effectively managed by Goldman Sachs ( GSN ), credit decisions and financing for buy-now-pay-later loans belong to Apple. Tim Cook’s company is doing some of what Citigroup ( CN ) or Bank of America ( BAC.N ) does, but without the burdensome regulation.

It is a question of potential rather than actual risk. Consider that nearly half of iPhone users in the United States, or about 59 million, use the payment service based on Counterpoint research estimates. That would have given Apple as many consumer customers as General Electric’s ( GE.N ) financing arm GE Capital had in 2013. GE Capital needed a guarantee to repay nearly $140 billion in debt after the 2008 financial crisis.

The cloud categories of Silicon Valley giants also play a systemic role. Big banks such as JPMorgan ( JPM.N ) are working with Amazon and others for a variety of functions, including housing data, processing transactions and running applications. According to S&P Global’s 451 Research, 45% of banks use Amazon, while a similar proportion rely on Microsoft ( MSFT.O ), with many using both. Disruptions or failures caused by hacking or natural disasters can escalate operations and cause panic.

In GE’s case, it was the FSOC that stepped in when it became clear that the regulatory framework had holes in it. The 15-member panel was created after the 2008 financial crisis, and now includes Treasury Secretary Janet Yellen, Federal Reserve Chairman Jay Powell, Securities and Exchange Commission Chief Gary Gensler and Consumer Financial Protection Bureau Chief Rohit Chopra. The Council In 2013, GE Capital was designated a systemic risk and placed under federal supervision until 2016.

Tech companies will be a timely fit for the FSOC. The team does not perform day-to-day custodial duties, but may perform these duties for the relevant panel member. After the 2008 financial crisis, the Fed took over insurer AIG ( AIG.N ). Other FSOC members have their own expertise: the SEC’s is over capital markets, for example.

And like GE, it doesn’t need to cast a net of control around the entire company. Apple may be required to carve out an Apple Financing subsidiary into another holding company, which may be subject to rules on underwriting, credit quality and stress testing. Cloud businesses, such as Amazon Web Service or Microsoft Azure, can be considered financial services that are strategically important to other market pipelines, such as the Chicago Mercantile Exchange.

None of this will stop the financial march of tech companies, but it will slow them down. Regulated entities should have their own CEO, board and rules on cyber security and other issues. British officials recently floated a range of options to ensure the financial system can withstand a cloud computing snafu, including regular cyber resilience tests. And financial regulators often find auditors parachuted into the offices of the companies they oversee, regularly inspecting risk management operations. That’s an intrusion unknown to Silicon Valley.

Even if the FSOC drags its feet, more red tape is inevitable for tech firms. In October, the CFPB questioned Apple, Alphabet ( GOOGL.O ), Google and Facebook about their payment systems. The agency can issue enforcement actions for violating user privacy, among other concerns, and Leader Chopra is certainly no stranger to using his position at other regulatory bodies — as his then-FED chief showed when he quickly left. Corp., Donald Trump nominated Jelena McWilliams.

Still, an integrated approach would be better. With billions of users and lax control, the system is growing with concerns for users and large tech companies. Meanwhile, Guardians often respond to past threats. Putting Silicon Valley on FSOC’s agenda will help keep financial police ahead of the game.

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Editing by John Foley and Amanda Gomez

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