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

    Regulators Fine Goldman Sachs for Risk Management Failures

    FCA and PRA in the UK, FED in the US, and the authorities in Singapore have fined Goldman Sachs for risk management failures in connection with the 1Malaysia Development Berhad (1MDB).

    October 23, 2020 WebPage Regulatory News
    News

    Canada Hosts International Conference of Banking Supervisors

    BCBS announced that OSFI and the Bank of Canada hosted the 21st International Conference of Banking Supervisors (ICBS) virtually on October 19-22, 2020.

    October 22, 2020 WebPage Regulatory News
    News

    FCA Proposes More Measures to Help Insurance Customers Amid Crisis

    FCA proposed guidance on how firms should continue to seek to help customers who hold insurance and premium finance products and may be in financial difficulty because of COVID-19, after October 31, 2020.

    October 21, 2020 WebPage Regulatory News
    News

    EBA Issues Opinion to Address Risk Stemming from Legacy Instruments

    EBA issued an opinion on prudential treatment of the legacy instruments as the grandfathering period nears an end on December 31, 2021.

    October 21, 2020 WebPage Regulatory News
    News

    ESRB Publishes Non-Bank Financial Intermediation Risk Monitor for 2020

    ESRB published the fifth issue of the EU Non-bank Financial Intermediation Risk Monitor 2020 (NBFI Monitor).

    October 21, 2020 WebPage Regulatory News
    News

    HM Treasury Publishes Policy Statement Amending Benchmarks Regulation

    HM Treasury announced that the new Financial Services Bill has been introduced in the Parliament.

    October 21, 2020 WebPage Regulatory News
    News

    APRA Initiates Action Against a Bank for Liquidity Compliance Breach

    APRA announced that it has increased the minimum liquidity requirement of Bendigo and Adelaide Bank for failing to comply with the prudential standard on liquidity.

    October 21, 2020 WebPage Regulatory News
    News

    PRA Consults on Implementation of Certain Provisions of CRD5 and CRR2

    PRA published the consultation paper CP17/20 to propose changes to certain rules, supervisory statements, and statements of policy to implement elements of the Capital Requirements Directive (CRD5).

    October 20, 2020 WebPage Regulatory News
    News

    US Agencies Finalize Rule to Reduce Impact of Large Bank Failures

    US Agencies adopted a final rule that applies to advanced approaches banking organizations and aims to reduce interconnectedness in the financial system as well as to reduce contagion risks associated with the failure of a global systemically important bank (G-SIB).

    October 20, 2020 WebPage Regulatory News
    News

    US Agencies Finalize Rule on Net Stable Funding Ratio Requirements

    US Agencies (FDIC, FED, and OCC) adopted a final rule that implements the net stable funding ratio (NSFR) for certain large banking organizations.

    October 20, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 6004