Digitalising Trust: Regulatory Design, Risk, and Inclusion at the Intersection of AI, Big Tech, and Banking

Abstract

This article examines the multifaceted transformation of the finance sector driven by digitalisation, artificial intelligence (AI), and the increasing participation of big tech firms in banking services. It synthesises theoretical frameworks of financial regulation with empirical and policy-oriented literature to propose an integrative understanding of regulatory challenges and policy design choices. Drawing on interdisciplinary sources, the paper advances three core arguments. First, the digitalisation of finance fundamentally alters information asymmetries, market structure, and the set of systemic risks that regulators must confront, necessitating an adaptive regulatory stance that blends traditional prudential tools with more dynamic, data- and algorithm-aware supervision (Arner, Barberis & Buckley, 2015; BCBS, 2024). Second, the entry and expansion of big tech and fintech into credit markets reconfigures competitive dynamics and consumer relationships, offering both inclusionary opportunities and concentrated-risk pathways that demand tailored oversight—particularly regarding data governance, model transparency, and adverse action in automated credit decisioning (Cornelli et al., 2023; Barakova, Ehrentraud & Leposke, 2024; CFPB, 2022). Third, governance of AI in finance sits at the confluence of cross-border regulatory fragmentation and rapidly evolving technological capacities; effective policy requires harmonised principles, robust supervisory capacity building, and mechanisms for algorithmic accountability that preserve innovation while protecting financial stability and consumer rights (BCBS, 2022; Calabia, 2024; CSET, 2024). The paper offers a detailed discussion of regulatory instruments—ranging from transparency mandates and model validation standards to supervisory sandboxes and macroprudential augmentation—and elaborates on trade-offs, implementation constraints, and research priorities. It concludes with policy recommendations emphasising multi-level regulatory coordination, investment in regulatory technology (RegTech), and a principled yet flexible framework for AI governance that aligns prudential aims with inclusion and market contestability.Digitalisation; Artificial Intelligence; Big Tech; Financial Regulation; Credit; Consumer Protection; Supervisory Technology