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
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