Featured Product

    Denis Beau of BDF on Approach to Regulating Financial Technology Firms

    January 30, 2019

    While speaking at the ESSEC, Centre d'excellence, in Paris, Denis Beau of the Bank of France (BDF) focused on the possible impact of fintech and bigtech start-ups on the traditional bank-centric financial intermediation model. He then highlighted some risks that go hand-in-hand with the changes underway and the regulatory and supervisory challenges they raise. Finally, he explained how the Bank of France addresses these risks to strike an appropriate balance between the objective of fostering innovation and the overall efficiency of financial services and the objective of ensuring a secure and level playing field for all suppliers and their customers.

    Mr. Beau highlights that bigtechs, more than fintechs, have the potential to fundamentally redefine financial intermediation by integrating the entire landscape of financial services into their own digital ecosystems. This does not mean that banks will be disintermediated; but rather that banks may be interfaced with bigtechs' platforms. Such a move is already gaining considerable traction in China. He then outlined the four coexisting intermediation models:

    • The traditional banking intermediation model for certain financial services, like mortgages
    • A non-bank financial intermediation model (formerly known as "shadow banking") performed by the asset management industry, in particular financing the corporate sector
    • A re-intermediated model, in which fintechs and bigtechs intermediate the banks, on the retail segment in particular
    • A fully disintermediated model supported by blockchain and peer-to-peer economies

    He added that the approach of BDF to all these new trends in financial intermediation is to harness the fintech opportunities while preserving the financial safety nets and a level playing field. Highlighting the importance of national initiatives as well as the European convergance, he added that BDF advocates a European regulation of crowdfunding platforms based on the French model. He explained that BDF's stance on regulating financial technologies is three-fold:

    • First, well-articulated and complementary regulation and supervision ranging from micro-prudential to macro-prudential and from prudential to consumer protection, anti-money laundering, data protection, and anti-trust laws
    • Second, a technology-neutral stance, which accommodates fintech innovation while preserving financial stability. In this respect, finding the right balance implies an open-minded approach and an in-depth understanding of innovation. That is why, in 2016, BDF created a specific Fintech-innovation hub at the ACPR to engage in a dialog with innovators: nearly 400 of them contacted BDF through this dedicated channel
    • Third, an activity-based regulation and supervision, to ensure a level playing field between all entities pursuing the same financial activity. The current multiplication of licensing categories to reflect the diversification of business models entails the risk of a loss of regulatory clarity and regulatory arbitrage, which needs to be addressed.

    Mr. Beau emphasized that financial technologies can also be an asset to enhance compliance with regulation or risk management practices: that is what we call "Regtech." They can also help the supervisor to perform its task more efficiently, which is called "Suptech" (supervisory technology). In both areas, the prospects are promising. Think of the potential gain of efficiency for a supervisor if it could take advantage of big data and artificial intelligence, for example, to analyze the huge amount of quantitative and qualitative data reported regularly to him as well as weak signals collected in the market—or if a supervisor could turn the backward-looking monitoring tools into predictive processes. Finally, he added that supervisors are just at the beginning of the learning curve and they will clearly face a number of challenges: facing risks inherent to innovative projects, understanding the capabilities and limitations of new technologies, enhancing a modern data culture in supervision, and hiring people with new and rare skills.


    Related Link: Speech

      

    Keywords: Europe, EU, France, Banking, Securities, Non-Bank Financial Intermediaries, Shadow Banking, Bigtech, Fintech, Regtech, Suptech, BDF, BIS

    Related Articles
    News

    SEC Adopts Rules and Amendments Under Regulatory Regime for Swaps

    SEC announced that it took a significant step toward establishing the regulatory regime for security-based swap dealers (SBSDs) by adopting a package of rules and rule amendments under Title VII of the Dodd-Frank Act.

    September 19, 2019 WebPage Regulatory News
    News

    APRA Revises Standard on Margin Rules for Uncleared Derivatives

    APRA revised CPS 226, which is the prudential standard on margin and risk mitigation requirements for non-centrally cleared derivatives.

    September 19, 2019 WebPage Regulatory News
    News

    BIS Formalizes Agreement to Set Up Innovation Hub in Hong Kong SAR

    BIS and HKMA signed the Operational Agreement on the BIS Innovation Hub Center in Hong Kong Special Administrative Region (SAR).

    September 18, 2019 WebPage Regulatory News
    News

    PRA Proposal on Probability of Default and LGD Estimation

    PRA proposed, via the consultation paper CP21/19, an approach to implementing EBA’s recent regulatory products relating to Probability of Default (PD) estimation, Loss Given Default (LGD) estimation, and the treatment of defaulted exposures in the internal ratings-based (IRB) approach to credit risk.

    September 18, 2019 WebPage Regulatory News
    News

    PRA Issues Consultation on Prudent Person Principle Under Solvency II

    PRA, via the consultation paper CP22/19, has set out its proposed expectations for investment by firms, in accordance with the Prudent Person Principle (PPP).

    September 18, 2019 WebPage Regulatory News
    News

    CFTC Extends Comment Period for Proposals on Cross-Border Clearing

    CFTC announced that it is extending, until November 18, 2019, the comment period for the proposal for an alternative compliance framework for derivatives clearing organizations (DCOs) that are organized outside of U.S. and that do not pose substantial risk to the U.S. financial system.

    September 18, 2019 WebPage Regulatory News
    News

    BNM Publishes Financial Stability Review for the First Half of 2019

    BNM published Financial Stability Review for the first half of 2019.

    September 18, 2019 WebPage Regulatory News
    News

    APRA Observations from Thematic Review on Recovery Plans of Insurers

    APRA issued a letter to general insurers and life insurers, outlining observations from a recent thematic review on recovery planning by insurers.

    September 18, 2019 WebPage Regulatory News
    News

    FASB Issues Summary of Tentative Board Decisions at September Meeting

    FASB published a summary of the tentative decisions taken at its Board meeting in September 2019.

    September 18, 2019 WebPage Regulatory News
    News

    EIOPA Forms Consultative Expert Group on Digital Ethics in Insurance

    EIOPA established the Consultative Expert Group on Digital Ethics in Insurance to assist EIOPA in the development of digital responsibility principles in insurance.

    September 17, 2019 WebPage Regulatory News
    RESULTS 1 - 10 OF 3848