“Same business, same risks, same rules” – ECB comments on regulation of Fintech

In a statement made at an ECB Fintech Workshop, Sabine Lautenschläger (Member of the Executive Board of the ECB and Vice-Chair of the Supervisory Board of the ECB) told the audience how the ECB sees some of the following as risks:

  • New players make the market more competitive. And that could squeeze profits and force banks to cut costs in areas such as risk management
  • Bank funding might become less stable. New products, tools and services enable depositors to easily and quickly switch banks; they can select a better offer in a heartbeat. For banks, deposits might become a less reliable and more costly source of funding
  • Some fintechs also apply new models for scoring the quality of loans. These models are based on vast amounts of data and are supposed to be more precise than traditional approaches. But they have hardly ever been tested in a severe recession or a crisis
  • Threats of a more technical kind: cyber risks. Cyber risks affect everyone – banks, fintechs and their customers. Arguably, fintechs are more exposed to cyberattacks and data theft

Lautenschläger added:

“there is a chance that fintechs will deeply transform the banking business. It is up to regulators and supervisors to ensure that this does not come at the cost of stability. The issue is, of course, that fintechs often operate outside the regulated banking sector. With that in mind, policymakers should follow the general principle of “same business, same risks, same rules”. That is important.

As banking supervisors, we focus on risks related to banks. In that regard, we are working on a number of projects:

  • Take bank licences, for example. We see a rising number of applications related to fintechs. In response to this, we have teamed up with the national supervisors to work on a joint policy approach. It will ensure that applications are treated in the same manner across the entire euro area. Risks that are specific to fintechs will be assessed appropriately and proportionately
  • We are also seeing more and more supervisors exploring and setting up mechanisms to facilitate the authorisation process for fintech banks. Innovation hubs and sandboxes are two of the key words here. And we too are seeking to implement a euro area-wide hub for fintechs
  • We are also assessing the risks that might arise when banks or fintechs outsource data or even entire IT systems. We already carried out some work in this regard; in 2015, we did a cybercrime survey, which was a unique project at the global level. As a follow-up we implemented a data base to track and analyse cyber incidents in large euro area banks
  • And last but not least, concerning the business models of banks, we will explore potential risks that emanate from fintechs and other non-bank competitors. In that regard, fintechs are among our supervisory priorities

We have to closely monitor how fintech evolves and better understand its impact.”