​​Welcome by Chris De Noose, ESBG Managing Director

​Ladies and gentlemen, good morning. Good friends, thank you for coming to this indeed 8th conference that we organised about savings and retail banking. And this year we opted for the theme better regulation for growth and jobs. Indeed, growth and jobs because we fully support the package of Mr Junker for competitiveness, growth, jobs, investment and so on. I think that saving the retail banks as local banks have an important role to play regarding this, the realisation of this package. But for this we also need, I think, better regulation. Do you know, ladies and gentlemen, that for most banks in the EU cost of regulation reaches about 15 % of the total operating costs? And this is not the ESBC saying this, this is MacKenzie, that 9 % of human resources is going to regulatory compliance and for smaller institutions this figure is even 20 %, that on average regulation accounts for 41 % of the investment expenditure of banks. For small institutions, this figure goes up to 67 %. So just to give you an idea. I think we do not need more regulation but we need better regulation. And in this framework we welcome the initiative of the Commission for better regulation and also the Rifid (?) initiative. I think it's good that ESBG be fully supportive.


But let me tell you some issues about, some elements about the programme. I think we prepared for you a nice menu for this morning. First of all, we will have a speech by our President, Mr Fainé, then we will have three, as Jackie said, three active panels: one, the first panel, is to set the scene: financial innovation and the whole of retail banks are affected. It's not only about better regulation but will also be about digitialisation, about interest rate margins, even this morning I was reading in the newspaper, a Belgian newspaper, Mr Jadot from BNP Parisbas said that 2017 will be a very difficult year if the interest rates remain at this level. I think that we can only confirm this. I think these will be issues that we will discuss in this first panel.


Then the second panel: it's more about better regulation, proportionality for local banks. And then finally, the third panel will be about how regulation needs to catch up with digitalisation or digitisation. And finally we will have a closing speech by Alain Minc, who is the economic and political adviser at AM Conseil. The panels will be animated by Jackie, you already heard her. She told me that she will very much associate the public towards a discussion so Jackie I'm looking very much forward to fantastic morning sessions.


Thank you very much. Chris De Noose, ladies and gentlemen, thank you.

So, some very striking numbers there. 15 % of total operating costs, 9 % of human resources, 41 % of investment and those higher figures for smaller banks. Fairly staggering numbers. We'll talk later about what does better regulation really mean for the savings and retail banking sector.


But it is now my great pleasure, and indeed honour, to welcome to the stage the ESBG President, Chairman of CaixaBank, Isidro Fainé. A very warm welcome Mr President, and the floor is yours.

Opening Speech by ESBG President Isidro Fainé


Honourable guests, dear members of the European Savings and Retail Banking Group, ladies and gentlemen, dear friends, good morning.


It is an honour and a pleasure for me to take the floor in this opening session of the 2016 ESBG retail banking conference, especially because it is the first time that I address this annual event as President of the ESBG.


This conference takes place in a very challenging environment for savings and retail banks. But perhaps, just being down-to-earth mainstream bankers is the biggest challenge of all today.  As you will know, the confidence and trust of our customers has been on the decline as a result of the financial crisis. Regaining this confidence and trust must be one of our main objectives because if there is no trust, there is no business. And we can only regain the confidence of our customers if we are able to generate trust through honesty, professionalism, empathy and dialogue. We have to reactivate permanent dialogue with our customers. We have to be close to them and understand their needs so that we develop and provide new and better products and services. Better customer understanding enables better service which generates improved customer experience, greater client trust and loyalty and eventually increase revenues and more profits. This is why we differentiate us from other banks. Proximity to our customers combined with excellent service must form part of our DNA.


This brings me to the main theme of this conference: better regulation. IN order to properly respond to the changing needs of our customers, we have to ensure that regulations help us to achieve our mission which is to maintain very close and interactive relationships with individuals, their families, the micro-enterprises and SMEs and institutions that we serve. Overall, European regulators have done, and continue to do, a very good job in creating a better and a stronger regulatory framework for the banking sector in order to review risk and enhance financial stability.  And this VG (?) highly values the European Commission's initiative on better regulation and its willingness to make amendments wherever necessary.


In this regard we, the European Savings and Retail Banking Group, have responded to the Commission's call for evidence and have provided arguments and data regarding any impending consequences or inconsistencies between legislations. Better regulation should mean proportionate regulation. This principle has to be recognised and implemented at every step of the legislative process so that existing and new regulations are applied proportionally to different banks. The 'one size fits all' approach does not work to enhance the vital role of locally rooted banks as suppliers of banking services and financing to the real economy. Differentiation should relate to, among other factors, size, business model and other [inaudible word] factors.  Such an approach would be very much in time with the purpose of the European Commission's seeking to make EU legislation lighter, simpler and less costly. We also need a level playing field so that the same regulatory framework applies to all competitors: savings banks, commercial banks and especially other financial institutions such as Vitex and shadow banks. 


Since the theme of this conference is also related to growth and jobs, let me briefly comment on this situation of the whole and European environment.  We are well aware of the market volatility our economies are currently undergoing. None the less, moving beyond the short-term perspective, the world economic outlook remains positive. According to our forecasts, and despite the turbulence at the start of the year, world growth will reach 3.4 % in 2016 compared to 3.1 % in 2015. 

Growth, in advanced economies accounting for 42% of the whole economy, will maintain reasonable cruising speed of about 2 % during 2016-17. Growth could be slightly higher in the United States than in the Euro area. As for emerging economies, which account for 58 % of the world GDP, we expect a level of recovery from recent turmoil. Of course, this positive view does not underestimate the existing downside risks, including the possibility that financial volatility ends up affecting the real economy. However, it is important to remember that some key factors supporting growth will continue to parade over the following years. Monetary policy will remain accommodative. We could not have a better example of this than the measures the ESBG took last Thursday. Last but not least, low oil and commodity prices will favour world upward growth.


Let me now briefly mention some of the themes, of the big challenges as well as the opportunities that we face. I want to start with the challenges. First of all: low interest rates. Interest rates have been at a historical minimal level for quite a long time now. This policy, although it might be desirable from a macroeconomic point of view, poses significant risks for the banking sector. Some of examples of possible negatives consequences are the following: low interest rates harm savers who are mostly elderly people whose number increases year after year. Moreover, savings are a disincentive, especially long-term savings and pensions. Keeping interest rates at such a low level for a long period that deteriorates interest margins, thereby reducing bank profitability. This is especially true for local banks that concentrate on the traditional activity of gathering deposits and providing loans to SMEs and households. Finally, low interest increases the risk of creating new asset price bubbles.


The second challenge is the need to generate more free income through services and at the same time reduce operating expenses. As you all know, banks today provide an increasing number of services to customers. Standard banking products, advisory and investment services, multi-channel and digital payments, and value added services or value types such as financial planning, stock analysis, budgeting management and expense control, among others. However, the provision of these services with the highest quality standards come at a cost which should be reflected in prices. Savings and retail banks with large customer bases, branch networks and the latest technology and digital platforms, are particularly well positioned when joined with scale and scope of economies, these efficiency gains are passed on to both consumers and investors. As for unusual operating expenses the key decision involves making our head office services as limit (?) - It's not easy but it's necessary to reduce - and more efficient and ensuring that the branch network is a sales network and not an administrative burden. For me, the branches are points of sales basically. If you do not have a wide range of services, you have no chance of survival.


One third challenge is fighting financial exclusion. Two billion people around the globe and twenty million within the European Union lack access to formal financial services at a reasonable cost. Financial exclusion affects the overall quality of life of individuals, their patterns of consumption, their participation in economic activities and their access to social welfare. One of the most effective means of promoting financial inclusion in Europe is, in my opinion, developing microfinance. Microfinance facilitates access to basic financial services such as: loans, savings, cars, money transfer services or micro-insurance. The beneficiaries of microfinance are typically low-income households, micro-entrepreneurs, migrants and young people. As you all know, the migration and the refugee problem is one of the key challenges for the European Union today. Microfinance could be a good instrument to fight it, help them and make a stronger Europe. 

Let me take this opportunity to give you in just a few seconds a good example of this huge potential of microfinance. To meet this need for microfinance and based on my own experience in 2007, I promoted the creation of Microbank in Spain as a social bank with the aim to channel microcredits to those social groups in need. Today Microbank is a highly commendable success story. Since its creation it has provided more than 450,000 loans to individuals and families, amounting to almost 2.5 billion euros without any other guarantees than their personal honour. It is worthwhile mentioning the non-performing loan ratio of this business is very low: 2.15 % or 4 times less or 5: 4 times less than the Spanish average. We have also found that microfinance is an external lever in creating jobs. According to a study conducted by Microbank and ESCADE, the world-known Barcelona business school, for each entrepreneurial initiative put forward and supported by the microloan, in all 2.6 new jobs are created.


Up to now, I have presented you with some of the major challenges we face but as the saying goes, an optimist always sees an opportunity in every challenge. And we are indeed optimists by nature; but, of course, with our feet firmly on the ground.  So let me now talk about some of the main opportunities that lie ahead of us.


The first opportunity is digitalisation and the importance of big data. Digitalisation represents a great opportunity to change the way banking is done. It is an opportunity to be even closer to our customers and to learn more about them by better using the capabilities of big data. Digitalisation allows us to offer our customers a better, faster and more targeted personal service. We have the best of our worlds: our full bank [inaudible word] world, an advanced digital banking platform. We have to create successful synergies between them and ensure that our customers receive the 24/7 services they expect. By integrating the different distribution channels, we are able to offer the right products to the right customer segment so their desired channel is rooted in a number of our core savings and enhanced customer experience.


A better customer experience, physical branches, will become less essential for processing transactions but their importance will increase as they become centres of high-quality advisory and urgency-based services. I do not believe that retail banks will ever become pure online banks. Moreover, the smartphone has today become the more and more frequented buying branch here in the pocket of everyone and it is critical that it becomes fully integrated in our multi-channel strategy. I think that banking through smartphones is a very good example of adapting that tradition of retail banking models to the new social and technological reality while meeting the needs of the new digital generation, the so-called millennials.


A second opportunity is customer relationship and proximity. As I have already mentioned, customer satisfaction, starts with trust. We have to rekindle dialogue with our customers. Have a good relationship with customers is not something we can gain overnight. Professionalism in our world is a mixture of coexistence, respect, habits and commitments. Thorough dialogue with our customers is a necessary requirement of our plans. It is also entails putting the customer at the centre of everything we do in the bank. Focussing on the customer means focussing on the quality, the quality of customer services, and making part of the bank's core strategy.

To guarantee high levels of customer service, we likewise have to implement a culture change among our employees to ensure that customer satisfaction is a priority in our everyday service. This implies training and empowering and motivating all employees to help the bank. Let us stop spending so much time reporting and bureaucracy which only erodes our professionalism and affects the confidence that our customers have in us. In order to avoid this, this is a summary, branch [inaudible word] employees should dedicate around 90 % of their time to customer relationships, not other things. 90% in relation with the customers.


A third opportunity to contribute, to make SMEs financially strong so that they are able to have better access to capital markets. In this respect we welcome the European Commission's capital markets union initiative; however, we also believe that this initiative in our proximity banking model, are complementary because we know SMEs better than anyone else and over the years we have developed a long and [inaudible word] relationship with them.


A fourth opportunity I would like to comment on is social commitment. Since out banks are very close to the reality of households, SMEs and local communities, it is very easy for us to be aware of the true needs of society. Also social commitment is therefore an integral part of our mission. Whenever possible, one of our fundamental priorities should be to develop social welfare programmes. We are proud to say that ESBG members devote more than 1.2 bn euros annually to social and welfare programmes. And of course this is apart from all the taxes that we pay. All told, this is a very significant amount. Nevertheless, I believe that we can do even better in the future.


I would also like to make it clear once again that ESBG members have never stopped, in spite of the economic downturns, playing a vital role as the backbone of the real economy. We have developed innovative products and services to extend finance to SMEs, households, consumers and all layers of the population; in other words, to the real economy.


In my closing words I would like to quote Charles Darwin who said "It is not the strongest species that survives, not the most intelligent. It is the one that is most adaptable to change." This is especially true in the financial sector. Our environment has changed dramatically in recent years. Technology has changed. The rules have changed, society has changed and most important of all, our customers have changed. They are more prepared, more demanding, more critical and better informed. So in like fashion we must change and that quickly and intelligently to the new circumstances. We must be more prepared, more demanding on ourselves, more critical of how we do things; and better informed. Therefore, and in line with what I have just said, we as [inaudible word] bankers must first adapt efficiency to the new regulatory requirements in a joint efforts with regulators to ensure proportional regulation and a level playing field.


Second, change the traditional product sales culture to a new customer service culture where the customer is the centre of our strategy, not in theory but in practice. For this is the reason we need to speak with them.


Third, embrace and invest in new technologies and use them to our full advantage. 


Fourth, attract new leaders who can identify, understand and manage new business opportunities and emerging risks and keep pace with the changing financial landscape. Good leadership creates growth and growth jobs. Not only can we do all that but we can also remain true to the basic three R principles of the ESBG which guides the activity of retail banks: Retail banks with a Regional presence and a Responsible attitude towards business and society. And allow me to add a fourth R today: Return. Because achieving a reasonable return on equity is critical to ensuring the continuity of our business model.  Let me also thank the European institutions for their support of the ESBG and express my conviction that working together we can create the right scenery to clearly advance in the right direction.


As the classics say: what depends on us, can always be achieved. Consequently, let us do it and move forward together. Thank you for your attention.

Setting the scene: Financial Innovation and how Retail Banks are affected

Thank you very much indeed. Isidro Fainé, ladies and gentlemen. And thank you for your very inspiring words, for identifying those key challenges as you see them and those key opportunities and what needs to be done by your industry but also by others to enable you to meet those challenges, make the most of the opportunities and continue to serve the real economy. Lots to come back to in our discussions as Chris already mentioned, we will first focus more on this environment that Isidro has just been outlining for us: What are those key challenges and particularly how financial innovation is affecting the sector, how the sector is embracing it. We'll come back to that in just a moment.


Then the question of proportionality: how to ensure a proportional approach that enables savings and retail banks to play that part in the real economy. Interesting some of those numbers that Chris gave us earlier on about the cost of compliance, whether human or financial. And this question as well: digitisation. Isidro talked about it a great deal. How do we ensure that regulation keeps pace with digitisation and enables the sector to take full advantage of those technologies, of those advances, to serve customers. Because, as Isidro said, customer at the heart, in the centre of everything. All things to come back to.


So our first panel: the scene-setting panel if you like, is on financial innovation and how retail banks are affected. We're going to get an overview, we've had already a sense of those challenges, we're going to discuss those, but first to give us a bit of inspiration for our discussion I'm delighted to welcome Jan Scholes who is head of marketing at the Consilium Group to set the scene for us a bit in terms of financial innovation and how it's affecting the sector. Jan:

Thank you Jackie and thank you for having me here today. [......] I think a lot of people will be looking here going "what's a marketing person doing here talking about innovation in banking in Europe?" Just to sort of justify why I'm here is: I started out at university in a gold trading platform which was basically competing with you lot, the retail banks, savings banks. We were offering an alternative, a different way for people to diversify their portfolios. And we were bringing old, the oldest form of money - gold - into the most modern way that you could be trading it, doing a peer-to-peer lending platform. It was physical gold and it was stored in vaults all around the world. And that was my first kind of taste and exposure to financial innovation and the reason I got into that space was because I graduated in an era where there weren't very many jobs in the industry that I was going into which was banking and so everyone was challenged by financial innovation and what it had to do with the financial crisis and two things really came out of the financial crisis I believe. One was compliance and regulation and the other one was innovation and Fintag. And it's interesting now looking at how they're evolving and how they'll end up working together.


So at the gold platform that I started with a couple of other people we came across Bitcoin very, very early on because Bitcoin was presented as a competitor to gold and so when you start any company then you want to hear how the experience was to them, then to have someone go "actually I've got a better product and it's cheaper" is the last thing you want to hear so we looked at, we started looking at Bitcoin. How many people here own Bitcoin? No one going to admit to it because everyone's scared of Bitcoin. Anyone here know much about Bitcoin? No, OK, good. So I can just tell you whatever you like: Bitcoin's the best thing ever, everyone should invest in it ... No [laughs]. So we started looking at Bitcoin and the technology that was underlying Bitcoin which is blockchain technology which I am sure a huge number of you have heard about it. The standard line for banks is "I believe Bitcoin bad, blockchain good". Really you can't have very much without the other but they are interesting in how they are evolving and so the reason that blockchain is interesting and what it is doing, is because it's really challenging the status quo in the financial sector and what you can do with it. I'll give you a very brief explanation of Bitcoin and blockchain but I know there's someone here on the front row who's going to be on the panel wo's probably going to correct me shortly.


So Bitcoin with a capital B is the first application of blockchain technology and this is the immutable decentralised ledger that chronologically records the transfer of ownership of digital assets. That's sort of it in a nutshell; you can do a number of things in financial services where we're looking at it the most. Coinsilium Group, who I now work for, who ended up investing in the gold platform I started: we invest in blockchain technology and we provide consulting to banks and other types of institutions. And that's because we see a real opportunity for blockchain technology, whether you're using private blockchains or public blockchains. So prior to the advent of blockchain technology, any digital asset, for example a data file, a music file or a picture, could be duplicated many times over. And blockchain allows us movement of this digital asset to be only recorded once. So far it will only belong to only one owner at a time. And the movement of this asset between wallets is recorded in a block and once it is recorded it cannot be tampered with or deleted, and this is chronologically recorded. And so this distributed database has no single point of failure and data is replicated through network nodes. This model makes data highly resilient and available throughout the whole network, substantially reducing the risk of denial-of-service attacks, or DoS attacks. And now to really confuse you, there's more than one blockchain.


Many of you who do know about blockchain will have heard of a theorem ripple and ripple is one that has really gained a lot of momentum throughout Europe. And what they're doing is working on the Internet of Value and so this idea of using, transferring value, i.e. money, at the same speed that we can transfer technology and information across the internet.


So the highlights for you in terms of banking is: blockchain will accelerate [inaudible word] transactions, improving capital efficiencies, it's more transparent because the muser has immediate access to all the transactions that were involved, it's cryptographically secure - don't ask me anymore what cryptographically means! - and it's more efficient because it eliminates the need for intermediaries. And that in itself is a major challenge for the banking sector in itself: the idea that we don't need the central hub in order for intermediaries to go through. And this is what is getting people a lot nervous: roles are under threat and the promise of blockchain is the removal of many third parties such as record-keeping, asset custodians, notaries and certain government agency functions, particularly during transactions. We will not need them anymore because the blockchain will provide the necessary level of trust. That is the belief of the blockchain space in many areas but I very much believe that regulation is needed in order to provide the guiding force in this area.


And so the three areas where we're really looking in terms of financial institutions and blockchains are payments, both B2B and B2C, trade & settlement and smart contract. The other area I was asked to speak to you about today was the Internet of Things. And this is, I think, something that we can relate to slightly better, mainly because of our experience with mobile payments. And so, I don't know if anyone here has an Apple watch? I haven't got mine on because it didn't go with my outfit but Apple watches allow you to pay using Apple Pay if you want to, using near field technology. And this in itself is impacting how we're doing banking because as we were just talking about in the previous speech, we are now interacting very differently with technology. We're interacting very differently in terms of social media, how we see technology, what we use our apps for, really what the end payment process is. And so the Internet of Things is really kind of allowing us to see how we use money very differently and this in itself will, I think, provide a challenge to retail banks and you try and gather up new customers. We were talking of the role of the high street bank and footfall and so are you now as an 18 year old likely to walk into a bank? You don't really know much about them, they haven't been part of your life for very long, if at all, and so do you trust them? What are they actually enabling you to do? Now to you, you're all going "well, we're giving them a bank accounts, we're letting them spend money" but actually you haven't had a huge amount of experience with them.


And so this I think this is where another area of innovation is coming in that we're all very interested in. Really, if you think about the loyalty that young people have, generation z, so probably the generation below me, those that were born in the early noughties, just coming into their late teens, going off to university, they have been dealing with the likes of Amazon, Google, Instagram, Snapchat for a larger portion of their lives than they have with banks. And they trust them. Now my grandmother, who's 80 years old and who would kill me for telling you this! - She 80 years old, trusts Lloyd's bank in the UK because she has been with them ever since she left home, which is back in the 1950s. So she's loyal to them because she can see what they've done. But the likes of Facebook or Google know how an 18 year old or a 16 year old has been spending their money, they know where they're based, they know who their friends are, they probably know what direction they're going in their lives. For example, my friend Jill, who has been on Facebook since she's been about 14 or 15, she's left home, she's gone to university, she's bought a house, she's got married. Facebook knows what she's done. And so Facebook is better at marketing to her in terms of what she wants. And that provides a big, big challenge for banks because if Facebook or the likes of even Google were to be looking at offering financial products to these people, they can market to them better, they know them better and these generations trust them.


And so this is one of the big areas of innovation that I think people really need to be looking at and this ties in nicely to regulation and compliance because one of the things that we all struggle with, a lot of people now in the younger generations, is opening bank accounts because of the compliance and due diligence processes we have to go through. So for example, I would describe myself very much as a nomadic worker in the last year. Every six weeks I've gone and worked from a different city and based myself pretty much in a different AirBnB apartment around the world. What does that do to my address history? It doesn't really make me particularly favourable person in terms of my credit history. However, I run a business, I own shares in several businesses, I've got a good amount of savings, some gold - which obviously isn't doing very well at the moment - and I'm technically a good client. But banks don't tend to trust me. But Facebook and Google know what my lifestyle's like, they know what I'M doing so I think this is a real issue to tap into because social verification in itself is actually as robust arguably, and I'm very happy to have a debate on this, as the kind of credit checks and such that we are doing in banks today because 6,000 hours that have been put into a social media profile, for example, interactions or interaction just with Google, is enough verification arguably, than me just giving you my passport or my ID card or proof of address for several years. And so this is kind of something that I think we - if we want to be engaging with younger people, if we want to be solving this issue of, this fraction banking environment we're now looking at - we need to be reaching out to people and approving of young people in the ways that they are getting verification elsewhere.


I had a lot more to say but I was asked to halve my time but those are the main areas that I think that we need to be looking at. And finally, just think about how in terms of innovation we are now using technology. Our attention spans are much shorter.  Thanks to evolution we are able to adapt but we are also looking for a lot more in terms of how we jump on with things, how we adopt things and who we trust. And I think that is really how you need to be reaching out. And one of the biggest challenges that retail banks are facing today in terms of innovation.

Thank you very much indeed Jan. Fascinating stuff there. And some very clear examples of just how dramatically the landscape in which many of you work is changing, changes in the technology and, as Jan said, those changes in how we're interacting with it, how we adapt and crucially how do you meet that challenge from the non-banking rivals, those who've not traditionally been in banking but, as Jan said, have some advantages; the retail banking sector has other advantages of its own. So coming back to how you make the most of the advantages that you have and cope with that environment and crucially, Jan said in relation to blockchain, regulation is needed to provide a guiding force in this area. What sort of regulation is needed and what sort of regulation is not, if I can put it very simply.


Let me introduce our three panellists in this session. AS I do, please do come up and join me in the comfy seats. Fabrice Denele, head of cards & payments at Groupe BPCE, a very warm welcome to you Fabrice.


Arnold Kuijpers, director of European affairs at Rabobank. Come and sit, why don't you come and sit next to me, then I won't feel so lonely. Arnold, and next to him - a warm welcome to you Arnold - José Agostinho de Matos, Vice Chairman and CEO of Caixa Geral de Depositos.


We're going to dive straight in. I've got a couple of questions for them to get us started but as I said and Chris said at the beginning, we really want to get you involved in this discussion. So I will be coming out to you soon with the microphones.


But Fabrice, perhaps I could start with you. Isidro, in his opening speech, outlined those key challenges and opportunities as he saw them, both sides of the coin. Jan there outlining how fast the landscape is changing and I think seeing also a mixture of challenges and opportunities. What for you are the most important challenges and where's the greatest opportunity? How do you see the balance between the two?

Thank you Jackie and first of all thank you Chris, for having me today. It's always a pleasure to share thoughts, especially on innovation and how fast the landscape is changing.


I would say banks now have to face a lot of disruption, that's for sure, and probably this is one of the most disruptive landscapes we have ever seen in banking for a long time. I remember the editor of the Financial Times saying in Davos something like "no one wants to be in banking nowadays, everyone wants to be in fintechs". And it's just, you know, like that. There is a triangle between the new generation, the millennium generation coming, and they are on the move and they are very clever and they are very disruptive, not only for banking but also for the whole society.


Second, we have the democratisation of technology, like mobile, like Internet of Things, etc. etc., blockchain.


And third we have a big switch in terms of behaviour, individual behaviours. That means that banks will absolutely not be protected from changing themselves considering what's going on in that triangle.


And probably there are two different things. One is dealing or if possible with regulation and which kind of regulation we need. And the second thing is thinking about how can I transform my practice of banking.


In terms of regulation.....

Briefly if you would, I would like to come back to all these things in the discussion but briefly by way of identifying those challenges.

In terms of regulation, I have a concern that banks are more and more facing problems with competition authorities because they have for ages organised the landscape between banks to make payments happening, everywhere all over the world, universal, and this is something that it seems the competition authorities all over the world are not always comfortable with.


And the second thing is about digital transformation within banks but I will come back later.

OK thank you very much and as you say therefore, not just that regulatory environment that we tend to be focussing on, the reforms since the crisis, but also that wider context. Arnold, from your point of view: more of a challenge or more of an opportunity. Where do you see the balance sheet of the two lying?

In my view fintech is exciting, also for banks, if they do it in the right manner. I'm much more concerned about the digitalisation of traditional banking, that's a different subject. But if it comes to fintech, let's see where it ends up. It provides better solutions for the customers, let's see where banks will take part in that. In my view I always like to make a distinction when it comes to fintech. You're from banking where it regards the intermediation of funds or transactions. When it comes to the intermediation of funds you have forms like crowdfunding, peer-to-peer lending, etc. And I think it's good it's there.


In Rabobank we reorganised our relationship management. Relationship management at this moment in time is a person finding the best borrowing solution for a customer. That might imply crowdfunding, that might imply peer-to-peer lending, that might imply making use of a fund of the European Investment Bank, whatever it is. He's the one who solves the problem. And it suits the bank. Because as most of the banks we are in the process of deleveraging. WE want to increase our capital ratio. So it meets, let's say, the desires of the bank and the customers at the same time if you organise it well. If it comes to transactions that is where i see, let us say, the most new innovative solutions and also the ones that have been mentioned relate most to that area. That will be, that will give a lot of differences compared to today.


But don't forget that banks are big investors in new technology already. We at Rabobank, for instance, we are applying the blockchain for 'now your customer' solutions, affiliated companies, just for experimenting to see what you can do with it, how you can develop it, [inaudible word] it, and apart form that I compare it to the pharmaceutical industry: the incumbent companies of the pharmaceutical industry are still there, there's a lot of biotechnology and all the small companies having their needs, have trouble to make solutions. And in the end for many of them, if they want, let's say, to benefit from what they are, usually they look for cooperation with the incumbents because they have the infrastructure and market knowledge in order to scale up  their efforts. So it will be a different area but not necessarily where banks are worse off.

OK, thank you very much indeed. José, from your point of view, that quote from Fabrice earlier "no one wants to be in banking, everyone wants to be in fintech", Arnold saying fundamentally banks are fintech as well. And this marriage between the two sides: do you see the balance sheets as more challenge or more opportunity?

Thank you very much. Good morning for everybody, it's a great pleasure to participate in this....


[It's working, you just hold it up a little more....that's it]


OK. So it's a great pleasure to participate in this conference and I suppose at the end of this conference it will be clear how important retail banks are for a strong European economy. Let's see, I  total agree with the initial speech of Isidro Fainé, it was very clear on the difference between retail banks and other operators in the market. On your specific question, I would say that of course there is always an opportunity and the opportunity side of the challenge is much more, it's much more important for us. But I don't see it as a substitute of this digital innovation and all this new participants, I see it more as an opportunity to partnership with banks because banks have a very important advantage: we know our customers, we have our customers since their lifetime, sometimes in several generations and so it's important this particular knowledge we have of our customers it's particularly important in this new environment.


But of course we have to know how to deal with the new generation. Last year at Caixa Geral de Depositos we had a very good experience with 18 aged people who were coming to university, enrolling in university for the first time. We usually have a very important programme to recruit these people as clients to the bank. And last year we had an opportunity of making them full clients for all more important operations that we could have with them, with a 15 minute operation based on tablets we could have all of them prepared to be our clients and prepared to do operations with us. It was a very important change compared with the past when we had those contacts with the clients but they were not immediately prepared to do business with us, to use their accounts and it was particularly important way of showing to the young generation our traditional bank, so to say, a traditional retail bank, the leader of the market in the country, could also have this type of modernity and this way of dealing with new customers.

Thank you very much. Could I go straight out? We'll come back on those two crucial issues, first in terms of digitisation and how you respond because Arnold you said you were more concerned about how traditional banks respond and what we heard from Jan. And how do you make those marriages, those partnerships with others and then back to this question of regulation, the broader environment and the specific: any questions also to Jan, she's said she's happy to take during this session.


Anybody have a question or indeed a comment to what you have heard at this stage? Or are you just waking up and need another coffee in the break before you join the discussion? I know how I feel many days. Ah! I see one over here. If you could introduce yourself I would be grateful and please be brief as you don't have all that much time. Thank you Madam.

Hello, my name is Marieke van Berkel, I work for the European Association of Co-operative Banks, also retail banks. I share the question to Jan because on the distributed ledger technology and blockchain I've had the benefit of listening to a number of speakers not so long ago and in that session a big point was raised around the energy consumption of blockchain technology. And since you seem to have done a lot of research into the possibilities, I was keen to hear your opinion on how we could solve the fact that blockchain for the time being seems to be consuming an overabundant amount of energy in terms of, compared to the present day payment technology.

OK, I'll just see if there are any more questions in the interests of efficient use of time and then I'll come to you Jan. Anybody else want to join in at this point? OK, so a very specific question Jan, here.

I think Fabrice you might also want to comment because you were talking to me about blockchain before. I think energy consumption is one of the concerns about blockchain. I think that one of the things that everyone, we're not just operating off one blockchain and many of the solutions that we're talking about doing so we can base it off several different... To be quite honest, my technical knowledge isn't great  on this but I know that we've got a few mining companies are popping up that are kind of helping us reduce the amount of energy that's required when it goes into maintaining blockchains. Blockchain is so early days that these solutions are coming in and so the worry about energy consumption and the likes of it is something that is being solved rather than something that is not a long-term adoption issue. But I don't know if Fabrice if you've got a comment on this as well?

Just as an example to complete the answer: for sure blockchain consumes energy but compared to what kind of transformation could happen, for example in trad finance. Trad finance consumes a lot of energy because it is based on papers all over the world, blah blah blah, bureaucratic stuff and so on. This is just to make the balance right for sure it consumes energy but this could change a lot of things and save costs and energy tool.

Thank you. In terms of digitisation and the biggest challenges ahead, obviously there is the investment question which takes us back and links to the regulation question because of those numbers we heard about earlier. But more broadly, how do you see the challenge now, what do banks like yours that are embracing fintech now, what ae the biggest challenges you face in order to do that and this question of how you either work with or fend off the non-banking rival. Then we'll come to the regulation question. Who would like to come in first? Arnold?

Yes, so what we see all over Europe is that tellers, branches of banks are being replaced by mobile phones and so on, and laptops. In the Nordic countries and Western Europe it's happening faster than in other parts of Europe and it has a huge consequence for banks. More than, let's say, it looks superficially. It's not only because banks have to invest tremendously in new systems but as the chairman this morning said, it's very important to stay close to customers, this is also in a digital age. So it's not only that you have to make, let's say, appliances, IT available for transactions or selling products, etc., you have to use technology to create a bond with your customer when you don't see him anymore. And you want to see him once or twice in his life when he needs a mortgage or a pension product. So your systems need to be more than just transaction-oriented. You need to have more competences. And then you have a legacy. You have a legacy because you don't notice that your branch network and the staff that is working there, it is not being paid for anymore. That's what we started, let's say, to feel in the Netherlands. To give you an example, Rabobank, the bank I represent, we are laying off 40 % - four oh - of our staff over a 5 year period. And we are also done. And I think when we are there we will think whether we have not too many staff left. Because the fact is the customer is not willing to pay for it anymore. So gradually, let's say not gradually but in a number of years the whole concept of banking is changing.


But what's also changing is the very business model. Because in traditional banking, when you have another 1000 of retail customers, you're hiring a new teller, a new person to deal with them. But in the digital age you need to invest in a system that can do it all. And the more transactions you have, the lower cost per unit. So what it is in the traditional banking, economies of scale is not an issue. In modern digital banking economy of scale is everything. What you see now is that there are European, there are banks in Europe, that when they are ready to have such digital banks in their own country, it makes sense for them to roll it out in another country, it's an easy thing to do because then there are more transactions. Economy of scale is the game of the plain.

OK thank you very much. José, from your perspective, interesting there because Isidro talked about branches as points of sale so earning their keep, as it were, and we also heard about that relationship, the Googles, the Facebooks, that already know more about the customer. So though it's not a physical relationship, you can use the digitalisation.


How do you see the challenge, and this relationship or rivalry with the non-banking sector? Which do you see it as?

I see it as an opportunity, it's a fact of life. We have this change in technology. But I see the digitalisation in banking as complementary to our physical network. Of course, everything is going to change, also in the physical network. We are, in our case, in a very demanding process of redefining the whole network, but taking into account all the possibilities, all the channels, all the multi-channels that digitalisation gives us the possibility to reach our customers. So it's a complement, it's not one thing or the other, it's both things.

I'll come back in a moment about how regulation can help or hinder that complementarity. Fabrice, from your perspective?

For sure it's absolutely right that there is not a binary world between banks on the one hand and fintechs on the other. There are a lot of bridges between the two, not only because we are funding fintechs but also because we are working with fintechs, partnering with fintechs and so on. But it's true that we need to transform the banking model itself, the legacy as you mentioned. Just remind that several years the public sector, the public authorities complained about the banks because banking offices, branches were replacing down the road the small shops and bars downtown in a lot of cities. Now we have to think collectively, including form a public authorities point of view, who will replace the small, the banks, offices and branches down the road, in probably 5 -10 years. If you pay a visit, I paid a visit some weeks ago to a branch of Caisse d'Epargne in France and asked tee lady who had something like 10 euros doing that business. She said it's boring now, it's frustrating, it's absolutely of not interest for me. Why? Because I only see people who want to complain or elderly or people who have time after coffee or before coffee, they come to the branch to have a talk. That's it. And I said OK but we have transformed your office, now you have the tablet for digital signature. And she said OK, but these kinds of people they do not want to sign digitally, they want papers. So believe me this is something very important to think about.


So banks, I think basically banks are facing two different syndromes. One syndrome is Kodakization, the other is Uberization. You perfectly know what's going on with those companies but what does it mean? Kodakization is not a lack of innovation, not a lack of expertise. Kodakization is the syndrome of a big company that perfectly knows what to do

 But this company sits on a very profitable business and does not want at all to change it. And this is all about Kodakization. And banks are facing that. Really. Uberization is a lack of thinking about innovation and transforming the business itself and the way we do things, the relationship with the customer, and so on.  And then we come to the point where we need to partner with fintechs, we need to think about it, we need to fund fintechs and then there is a risk and probably linked to the regulatory landscape. My concern is that what I see in Europe from time to time is that who buys the fintechs, sometimes ultimately the banks, but often US companies and [inaudible word] And this is an issue.

OK. Let's come to that regulatory environment. WE don't have long so I want to touch on this and we will of course come back to it in our later sessions, both terms of proportionality and in terms of digitisation and legislation that can keep pace with these changes that you're talking about. But how do you see, we're talking about investments and we had those numbers form Chris in the beginning about the increased cost of compliance; we also heard, and I don't need to tell any banker about the impact of low or the potential of negative interest rates on your profit margins. Given all of that, what do you see as the challenge now to get a regulatory environment after all these years of reform that we've seen post-crisis, that will provide the protections, help rebuild that trust, that Isidro talked about, and he welcomed this framework but what needs to be done in order to tweak it, change it, to make it really work and support what you're trying to do for the real economy. José first.

We have now a clear problem of, I'm not saying there is too much regulations, sometimes we have this type of discussion. We are in a very specific sector where the last decades there has been always some sort of regulation. The problem now is that we have a multitude of regulations and supervisory activities, from prudential supervision to conduct of, consumer conduct and this type of, and the newcomer for the resolution regime for banks so we have a lot of alternatives with different mandates that compete in a way and are altogether at the same time preparing their activities and their relationship with the system. So everybody, all the regulators and supervisors and worried about the risks of the system; I understand that; but think in the current situation and we see that most of these changes in regulatory framework were designed as a result or as a consequence of the old crisis. And now all the activities were expected, were supposed to have a very strong recovery in the economy so we would be changing the landscape with the economy recovering, preparing for the next crisis. The point is that the economy has been very, very weak all over Europe so we have been doing all these types of changes; at the same time the economy has not recovered. So in a way we have had a pro-cyclical regulatory framework that is negative for the economy and negative for the …..

We now need to take account of that

..... the intentions are good, I admit it but the implementation in the current situation is a little bit .....

Thank you, come back on that later on and a very interesting point you made about some of the assumptions perhaps that lay behind this. Fabrice, you raised this issue right at the beginning in relation to competition authorities as well as supervisory regulation and so on. What for you needs to be done now to ensure we have a framework that gets that balance right?

This is a big issue. I believe that if we continue like that, then we will face big problem because banks are facing a big trap between pressure from the regulators, including competition authorities, at the same time ratio solvability and so on, and all of this in a landscape of very low interest rates. So once you don't have the income from the interest rates, you say, well, let's go back to the service fees. But if at the same time we are urged by different regulators or competition authorities to decrease dramatically the service fees and make it almost for free, it's a big problem. And just have a look, or an example: if as a bank I want to jump into a digital business, let's take the example of the mobile acceptance, for example. Now you know all these small devices you plug on your iPhone and then it accepts cards. If as a bank I do this business, if I want to charge the same kind of prices as the fintechs do, I would charge 2. something, 1.7 something, something like that. But the problem is that the regulators, even do not think that it is possible that banks charge that kind of [inaudible word] rate because we are urged to charge something like 0.xxx and if we face that kind of problem I don't see what the solution is. This is a big issue.


We'll come back on that.

That's a big problem. So the consequence of that is that banks, and we see that in some areas of business, banks are going out of this kind of business. And I don't want to be involved any more, I'm de-risking my business. And that's a big problem.

In terms of serving the real economy, a challenge there. Arnold, how do you see the regulatory challenge? And then we'll try and draw some quick conclusions.

I see the regulatory challenge in two areas: financial and operational. Financial I think in the meantime there's a good framework of new banking regulations which safeguard the banks and the stakeholders of the banks quite well. But there are new areas I pointed out, let's say, what you see is because of the deleveraging of the incumbent banks. You see all other parties taking their place, the shadow banking, and are they well regulated? Or they might pose a risk for consumers or they might pose a risk for the system.


I'm not concerned about pension funds or insurance companies, they are all regulated, but when we are talking about crowdfunding initiatives and peer-to-peer, etc. and who in the end is going to be blamed for it if it's going wrong. That's one area.


But the area I'm even more concerned about is operational risk, and then it comes to IT. Let's say, let's focus on cyber-crime. It's a constant battle between, well, not only financial institutions but also government institutions, etc. and other people and states in this world who are constantly attacking systems. And now we managed probably to have the trust, the financial trust in financial institutions organised; I'm more concerned about operational trust, the trust in IT systems. Imagine yourself as a customer and you cannot get to your account for two weeks. What does it do to your trust vis-à-vis your bank?


And that's done the incumbent banks, they have huge investments, huge systems, they are vulnerable. But how vulnerable are the new initiatives, small initiatives, lesser resources, less experience, and I would like to see kind of a safeguard from a technical perspective because if they are being targeted, it will also impact the image of the whole industry.

Thank you. And we will come back when we talk of how to keep pace. Obviously the new regulatory challenges, cyber-crime being one, the other of course relating to data and again that balancing act. But we'll come back to all of that I hope in our third panel.


Very last question, and a sentence each before we release them for coffee and hopefully to invigorate them to join the discussion later on. For each of you and I started with Fabrice so my first question I'll start with José for this one: if you had to identify one thing that needs to be done, it can be for policy makers, it can be for the sector, it can be for all of you guys, one thing we need to do in order to meet these challenges, make the most of the opportunities and crucially go back to where Isidro started today: ensure that you can go on serving the real economy. What, in a sentence each, is your priority. José first.

Thank you. I think I would follow the chairman on the financial Darwinism that was mentioned in the presentation. We have to be very capable to adapt to new circumstances in the macro circumstances and the macro economy and of course to the circumstances in the market, in the financial sector.

Adaptation – adaptation – adaptation.

It's to change.

Thank you. Arnold?

I would like to take it a step further in the sense that the world is changing, no doubt about that. You'd better be a driver of the change than the one who defending his previous position.

Thank you very much. Fabrice, you have the last word.

It's difficult to pick up one thing but let's celebrate on de-risking. Once banks are de-risking their business, they are going out, they are selling infrastructure and things like that and this can come to a point where fragmentation in terms of systemic risk happens. And then I think the regulator should think pretty much about what kind of risk we're going to face in the coming years in terms of  fragmentation, different players, private companies, sometimes listed companies, owning and running systemic infrastructures and this is a big issue.

Thank you very much. Ladies and gentlemen, would you join me in thanking all three speakers very much for an inspiring start. And also for very clearly identifying the key issues we need to touch on in our discussions on proportionality and on legislation keeping pace with digitalisation. So thank you very much, it was quick, it was very much to the point.

​Panel 2: Proportionlity for Local Banks

We're going to start this session, ladies and gentlemen, with you doing a little bit of work. So if you could take up your voting pads that are in front of you on the desk and I will explain how it works. OK, so as I say in this session and in the next one we thought it would be quite helpful to our panel to capture your views on the key issues we'll be discussing. So I can then put those points to our panel and get their reaction to the feeling in the room, as it were. Voting pad is extremely simple: it's A, B or C. Only one answer counts so if you're a little trigger-happy and you vote very quickly, you can't change your mind afterwards. So if you want to take a pause, I'll warn you when I'm about to close the voting and then we'll see the results instantly and as I say then I'll introduce our panel and we can discuss the issues with them.


So this is the session when we will focus, and it's already come up, on proportionality for local banks. Are the current rules fit for purpose to take account of diversity in the sector? Do we need a more proportional approach? And how does this fit into the broader, better regulation agenda of the Commission? And that Isidro was talking about at the beginning and Chris De Noose as well. We heard those numbers from Christ de Noose, I'll come back to those with the panel.


But let's have our first question, if we could.


So question 1: Does a one-size-fits-all approach in regulation allow the banking sector to meet the needs of the real economy? You have  three options:


Yes: yes, regulation should be the same for all banks, whatever their size and range of activities - press A.

If you think to some extent that common rules are needed, but with some flexibility to take account of differences - press B.

And if you think No, it simply doesn't work and we need a much more nuanced approach - press C.


So A if this one-size-fits-all basically works; B if it half works and C if you don't think it works at all. Let's open the voting. I'll give you a wee while just to think about that. I don't think you're going to take very long to think about it, if I'm honest. OK, has everybody voted? Let's close the voting and let's see those results, if we can. OK so 1 in 10, 9% of you think it's basically fit for purpose; 51 % so-so and 40 % really want to see fairly significant changes.


Question 2: 91 % of you want it to be more proportional in some sense. Let's have that question, if we can move to question 2 now, there we are. OK, if we need a more proportionate approach, how should we do it? Isidro mentioned earlier some of the factors that could be taken into account. For you: is it


A - that proportionate approach will be delivered by actually changing the rules? If we can have those options up. A changing the current rules

B - by applying a tiered approach to implementation of those rules or

C - if you think no changes should be allowed.


So if you were one of those ones, that 9 %, who said yes, it's basically working, do you think not only is it working but no, you mustn't change it? Or if you must, if you should change it, do we change the rules or the implementation? Let's start the voting. OK, and if you're all done, let us close the voting and in a moment we will see the results. OK 36 % actually think we need a change in the rules; 59 % think that it can be done simply by applied it in a tiered approach and 6 % of you think it should not be changed at all.


Let's just complete that picture and come back to a question that I began to ask our first panel and we will come back on it in these two panels. Let's have that 3rd question:


Is the regulatory environment having an impact on retail banks' ability to invest in innovation? If innovation is your differentiator, then investment in innovation is key: to what extent do you believe the regulatory environment is having an impact on that?


A - The cost of compliance is draining resources from much-needed investment. If you think that press A.

B - Press B if you think to some extent. You are, retail banks are investing in innovation but the cost of regulation is limiting their capacity to do so. Or

C- if you think come what may, whatever the regulatory environment, the investments are needed and the sector is and will go on making them.


So, I'll give you a moment to think about that. OK, and let's have a look at the results there. OK, so 26 % of you think it really is a significant issue; just over half of you - it's an issue but you are going on investing and one fifth - higher this time, very interesting, although much higher than the figures for those who said the rules shouldn't be changed - you are doing the investments anyway. So interesting set of figures which I will now put to our panellists. So thank you very much, keep your voting pads, we will come back to this in the third session because I'd like to get your opinions again when we do. But let me now bring up our panel and ask them to come and join me. And I'll do it in the order that you see them on the screen.


So: John Heller who is CEO of the Belgian bank Argenta. John, you're over sitting nearest to the podium. A very warm welcome to you, great to have you with us. I'm delighted to welcome Pervenche Berès MEP, a member of the European Parliament's Economic and European Affairs Committee. Thank you so much Pervenche for finding the time to be with us here today. Delighted to welcome back Andrea Enria, chairman of the European Banking Authority. It's always very good to have you with us, Andrea, thank you so much for coming. So Pervenche, if you could take the second seat here, Andrea goes into the middle there. Christophe Nijdam, I never know how to pronounce your name and I always mean to check so I apologise if I got it wrong, Secretary General of Finance Watch, a very warm welcome to you Christoph. And Karl-Peter Schackmann-Fallis, executive member of the board at the German Savings Bank Association, DSGV, a very warm welcome to you as well.


We have those interesting numbers, which I hope we will discuss and again I'm going to jump straight into the discussion. I'm going to ask the panel a few questions, put some of those figures to them and then I'll come out to all of you and I hope that invigorated by coffee and the fact that this is a slightly longer session so we have more space to really begin to hear your questions and your views on the issues we're discussing.


But Pervenche Berès, perhaps I could come to you earlier. We saw there from the voting 91% of this room thinks there needs to be some change in terms of the one-size-fits-all approach as they see it. Some want to see it quite dramatically; 40 % very much want nuance, 50 % want some changes in the way we apply it. Do you think that our current regime takes enough account of the diversity of the banking sector? Are we being proportional or do we need a change of approach. What do you feel?              

OK so we start with the critical question, I believe, for this session. Let me maybe just have one reservation regarding the outcome of the vote you have very democratically organised. It is, you have not defined constituity. Constituity does have an influence on the outcome of the vote. But this is en passant.

​It's fair enough, it's a proportionate answer. Now, I think this whole theme we're going to discuss here in this round table about proportionality is something now, when I hear the word proportionality, when we discuss the banking sector, I know who is speaking. Because this theme has been upgraded as one to defend a certain segment of the banking sector. Fair enough. And I believe if I'm still invited in this arena it's also because I've been a very, very strong advocate of diversity in the architecture of the banking sector. And I think this is really critical for the financing of the EU economy. Nevertheless, I think there are really strong biases in the approach, the advocate of the proportionality are taking.  Because this theme has not been on top of the agenda in the beginning. It is now there, also because, I mean, when we were drafting the whole legislation, that you need to take into account certain models that would not fit in the global approach that was proposed, was always there and this is why I think this organisation has been settled and has been growing and it's a success and it's a needed success because if you're not organised, not as a lobby but to be heard as stakeholders in this setting of a legislation, your point might get out of the scope and it's very difficult to take it back.


But now I can see a bias where behind proportionality there's a way to avoid being touched by any legislation. And I believe through the discussion we will have two three examples, maybe I could mention them straight off. We all have in mind, what has happened when we discussed the resolution fund. There the proportionality was used to avoid being part of the system or to pay less than others so the spirit of the euro, Europol (?) , was already there and then we had a second dossier on the file that was banking structure. And here I mean I've been tabling some amendment with Jakob von Weizsäcker to make sure of the scope of the legislation, to find out where the risk is, was large enough and surprisingly this was the first amendment he gave up in the negotiations. I wonder why. So this means the risk is only lying in the [inaudible word] bags. I think this is not true. We need to be blunt here. Where is the risk analysis going in detail? I know the answer: the answer is if you have a small bank it's going to be given up so it's not the same system at risk. But this is not what history has shown us in the past. Small banks did have a systemic impact on the whole system and so therefore to my understanding the risk they are taking when they are having some market operations should be taken on board.


And third example of course we should have in mind because this is on the current agenda of the Parliament, is the whole discussion about AnaCredit where here the proportionality once more appears to avoid being part of the legislation. So maybe it's an anticipation of your call. But I mean, to make it short: fair enough, the question of proportionality is something that needs to be taken into account. But it cannot be taken into account only to avoid being subject to any legislation and not to be covered by a view on what the risk is taken by the sector.           

OK we'll come back on where that balance lies because the president of this organisation, Isidro Fainé, at the beginning welcomed the regulatory environment broadly, it's just that question of whether it needs to be more nuanced. But we will come back on that. And this question of the diversity: how do you strike the right balance between protecting that diversity and pluralism, but as you say, but having the rules in place that you need.


If I could come to you Andrea Enria next. Two things: I just want to quote some figure that Christoph de Noose, the Managing Director of ESBG gave in his opening remarks. He said the cost of regulation, he put it: 15 % of operating costs of the bank, 9 % of its human resources rising to 20 % for small banks and 41 % of its investment, 67 % in the case of small banks. Your own stakeholding banking group had a report on this last year, looked at the costs-benefits and said they believed you were committed in principle to proportionality but perhaps not applying it across the board in the way you should. Do you think you're getting this balance right?    [00:13:48.13]

Well, let's say we are not arguing that we've done everything completely right. What I would argue is that we've made a big effort and that we have now in much more proportionate regulatory framework that wasn't the case in the past. This for a number of reasons: I mean, first of all, the reforms have been focussed on too big to fail so we have increased the requirements for those banks which are systemically relevant. WE have the systemic risk buffer, if you look in the resolution area you have the graduated system that if you are actually systemically relevant and likely to access to need access to the resolution funding, you have much staff requirements. So there is a system, we have done a lot, I mean proportionality now as a pillar to guidelines. For instance, the intensity of supervision which is graduated according to the size and complexity of the banks; we have done a lot of reporting. So we have done a lot in a number of areas.


Is the balance right now? Well, I think the Commission is right, now is the time to stop after this wave of reforms, look back and check what is the balance of the whole construction. And we acknowledge that for a number of reasons, also let me say, because of the lobby sometimes of the industry in the rule-making process which makes the recognition of specificities impact on the complexity of the regulation. But we cannot deny that the package is complex. The whole regulatory framework that we have now is very complex and as you say, quoting the figures that Chris mentioned, of course these are fixed costs which impact more on small firms. So we need to check whether the balance is right, whether we can do more and we are committed to do that.        [00:14:55.11]

OK, we'll come back on some of those issues and complexities as you say. A key issue in all of this, because the complexity of the legislation adds to that cost of compliance. Also I question whether this Commission approach now of checking, stopping and checking, as you put it, needs to become a regular thing. But we'll come back on all of that. John Heller, if I could turn to you now. In terms of this balance that they're talking about, Pervenche saying "fair enough but it cannot be an excuse" and Andrea saying "we think we've done quite a lot, we think we're getting into the right sort of area". To what extent for your business, very specifically, do you think there is more proportionality, not enough proportionality. What impact does it have if you do not successfully calibrate that proportionality?                

Well, good morning to you all. You know, three years ago my fine bank, Agenta here in Belgium was a Belgian second league soccer club. Nowadays, three years ahead, we're playing in the Champions' League soccer in Europe. I'm very happy because Mr Enria and his organisation, they said, well you're one of the safest banks in Belgium and in the Netherlands so my market is OK, even No. 1. If I look at the results of all the JST inspections, everything is fine. Sometimes with a lot of discussion, but it's fine. Let me go to very practical things. In the AQR, and the stress test of 2014, there was a template, thoughts were made and fill out each template. And I had to raise a group of 30-40 people in a group of 1000 people in total, my entire risk department was involved in that exercise. I had to hire external consultants to help me out. So we filled it in and we had a lot of discussion and we did it in a holistic way, as it should be done. And all the conclusions were right. And so we said, OK now we're in the Champions' League I'm going to automate this process. I want to have this template filled in much easier so as we can speed up next time and learn from the stress test in a more appropriate way. 2 years ahead, all the template definitions changed. That's proportionality: be stable, really do it in a practical way and my plea is really in proportionality: please take more time, take more efforts to see what the implications are for the different banks and I'm a good bank. I'M a sound, healthy bank. I want to stay that way. [00:17:46.26]

Thank you very much and I'll give you a chance, Andrea, to comment on that. I know that there were significant changes in the stress test because of people feeling they weren't quite stressful enough the first time. Sounds like they were plenty stressful but not in the sense that we mean. But Karl-Peter, if I could come to you now in terms of this balance. Do you think, Andrea saying, we've done quite a lot, not everything. Are they moving in the right direction or do we need a change of approach?

Well, at the outset of this panel I would like to come back to more general principles of regulation and answer your question according to that. My perception  is that we have a sort of bias towards the regulation of smaller & medium-sized banks and larger banks in the European Community which perhaps goes back to the famous strategy of the EU which was started in 2000 and which focussed on large companies to improve the competitivity [sic] of the European Union. And perhaps that's why the focus is still today on large banks and does not take into account that in Europe the banking market is much more diverse as we perceive it today. The banking market in Europe is not just perceived of large globally active players like BNP, Paribas, Santander the Unicredit, Barclays, you name them, or the Deutsche Bank in the past. It is composed of almost 6,000 small and medium-sized banks and their needs have to be taken into account in regulation as well. And among those 6,000 SME banks there's none who wants to get out of regulation at all, Pervenche. They are subject to all the regulations and the rules and laws which have to be applied in the European Union or under the supervision of the ECB. But the impact, the impact of all that regulation is higher for small and medium-sized banks than it is for globally active players like the Deutsche Bank in Germany. If they hire 30 lawyers it doesn't affect them at all but if one of our smaller members hires 1, it's one of fifty or sixty or seventy employees in all. That makes a difference. So if we don't take that into account, we will seriously affect the ability, the ability of the small & medium sized banks in Europe to finance the real economy and they are decisive for that economy which makes up the competitivity of the European Union.    [00:20:30.05]

Thank you very much indeed. Christoph, from your perspective, I don't know which way you voted in our first question. Were you in the 9 % who said everyone should be treated the same, were you in the 51 % who wanted some common rules but flexibility or the 40 % who said we really need to change the way we're doing this?           

What's your guess?      

I'm never a betting woman but I would say you're probably a B.            

I'm an A.            

You're an A.      

I'm the dissenting voice and thank you for inviting Finance Watch today to express a counter voice to the industry with the public view, public interest angle. I want to say a few things about the lack of professionality and the one-size-fits-all. First of all, we should not be confused between regulatory burdened and unduly burdened. The lack of proportionality is something that's really debatable because the legislation has been passed, it's fully legal and legitimate, the industry had ample time to discuss it. Also do not forget that there is a proportionality test that's mandatory in the legislative process and as we know it at Finance Watch that, let's say, proportionality has never been successfully challenged in the European Court of Justice.


Regarding the one-size-fits-all rule, it has to be weighted, we're talking about regulation, it has to be weighed against equal treatment. Regulation has to be commensurate to the inherent risk activity, let's call it micro-credential and also regulation has to be commensurate to the systemic risk of the entity, let's call it macro as opposed to micro. The prudential regulation has one objective: to restore trust and secure financial stability. It's a bit funny, from my point of view, representing civil society organisations, to see that proportionality is being brought forward as a wedge with competition-related issues. As well as indicated by Pervenche, there's probably no linear correlation between complexity and the risk of a bank model. If we look at history, mortgages - mortgages are a simple product, they have created problems. If you look more recently, before the sub-prime crisis, the S&L crisis, savings and loans crisis, in the US in the 1980s was also based on a very simply model.


On the one thing I do agree right now, but I think that proportionality is not the appropriate approach: yes, we agree on one thing, that there is no level playing field right now. But it's not a regulatory problem. It's more an economic problem in the industry because the industry has been biased in favour of the so-called 'too big to fail' institutions in favour of the large banks. So if you want to tackle the problem, it's not through proportionality, it's through bank structure reform and as far as I know, the industry has been against it, including the ESBG.     

There are two aspects of course to the level playing field question and it's already come up in relation to the non-banking rivals who are not subject to the same level of regulation as the banking sector. So as you say, on the one side and on the other, they are two sides of one coin.


But Pervenche, if I could come back on this question because the numbers, it was said by Andrea, of course fixed costs are important and we had those numbers, the comparison that it was 9 % of your human resource for a general all-banks or 20 % if you're a small bank or 41 % if you're an investment for banks generally or 67 % if you were a small bank. That's the figures that they have.


Is there an argument here, given that the fixed cost elements are proportionate and John saying I had to bring in all these extra people to do it. That's not trying to evade regulation is it? I mean, that is simply saying the burden on us is much greater than the burden on the other guys. Do they have a point?      

Well, of course they do because otherwise we wouldn't be here discussing this point. But the question is, how do we answer to it? And here, I mean I go back to my previous intervention. I do see the privilege for the EU to have a diversity in its financing model even though I think we have a bias which means it's very much linked to development on different basis among different member states. Let's be blunt, Germany has a financing model of its economy that exists nowhere else in the EU save for France. And the question, the challenge for the legislator is how do you make legitimate legislation where there's not this idea, that was mentioned already, that people or banks are not treated equal. And this idea about proportionality is a way to introduce the idea that there's inequality in the treatment. And this is exactly why you're mentioning these figures.


But let's go back to the root of the issue. Fair enough, it might be more costly for small banks to apply the legislation. But on the reverse, they are not in the same condition. For example, when it comes to the contribution to the resolution fund, and so the proportionality has already been taken into account there and it was a strong argument for the settling of the legislation. And I think you cannot enter this discussion with the idea, and I'M not saying this because I'M French, I mean, I'm looking to my dear friend  [inaudible word], I've been defending an alternative  financing system so I'm not suspect in this case. Or if I was, please tell me. But you cannot say, because we are a small bank we are not taking risk. This is not true. And what we have learned from the crisis is that a banker needs to dedicate more attention to two things which might look a contradiction but really need to be on top of the agenda: one is how do you finance  the economy, the real economy as  we say; and second, how do you manage your risk?               

Which links, [inaudible word] I know you want to come in Andrea, I'll come back to you in a moment but if we are to apply proportionality, on what basis do you do it? Because Isidro mentioned some of the factors earlier, he talked about the size, the business model, the ownership structure, but Pervenche raising a key issue here: it's not to do with how big you are, how risky you are, it's to do with the type of operations, etc. How would you answer that point? 

I would be very interesting to discuss with the German model of financing the real economy is unique in Europe or not. As I see it we have the cajas and the caixas in Spain, we have the caisse d'épargnes and the banque populaire in France, we have some smaller, we have 6,000 small and medium sized banks all over Europe. WE have a lot of cooperative and savings banks left in Italy, in Austria and everywhere on the continent. And the continental model of financing the real economy is by loans. It's not by all those measures mentioned in the capital markets union proposal, which is valuable, I don't question it. It just edits. So we have, I think we should look at, as key criteria here of the proportionality issue on the business model, whether it is quite simple or whether it's quite complex like those of the investment banks, taking in deposits and handing out loans to the regional economy isn't quite complex. Although it might pose risks as well, I admit that. So we have to look at the complexity, we have to look at the size, which means that the impact on the overall systemic stability should be taken into account and that's different from a 3 billion, 3 trillion balance sheet from a 3 billion balance sheet. And we should look at the risk imposed by that business model and the systemic significance and I think then we have a lot of good arguments to introduce more proportionality in regulations.

Thank you. Andrea, a comment to that and if you would pick up on John's point at the beginning about the stress test.      [00:33:21.23]

Well thank you very much for the point. It gives me an opportunity to try to elaborate about on these data issues which I know is very critical for a lot of banks. We are making a major effort to standardise. For instance, the transparency exercise last year we asked the banks not to feed any more templates when we had already data in the report. So we pre-feed the data ourselves and we ask the banks only the feed those areas in which we didn't have the data available. And gradually I would like to move into a setting in which the reporting is available to use and the disclosure is done even without, let's say, asking the banks to feed any single Excel templates.


On the stress test: also we are aiming in a direction in which we hope to have a standardised part which reflects the standard risks, macro outlook, credit risk, risk parameters and the like, and then to have maybe some specific focus on risk which are becoming especially hot in debt, [inaudible word] this year we are zooming in on conduct risk, for instance. So there will always be a part of the templates that will change and a part that hopefully will become standardised through time. It's always the same.


Now, are we there yet? Well, unfortunately, not yet. But we started, I don't need to explain to you European processes. We started this year with the objective or simplified methodology for the stress test, sorry last year's methodology was I think 100 pages; we started  with a draft which was 50 pages. We said let's make it simple and standardised and have it the same all the way. Well, after all the discussions we came out with a methodology which is still 100 pages and changed a little bit of things here and there and the template said to reflect that. Now we still hope that gradually we will move to a standardisation. The processes we have to manage are not allowing us to get there very fast but let's say that's the sense of direction.


Now more generally, on the point of how do you decline proportionality in practice: here I must say we want to, we have had two workshops on proportionality, the ESBG has made a report, we intend to develop further work here, I don't have a final answer to this question. I have more doubts than certainties in this area. But I think that going for size is not working well. It's too simple. We try with an [inaudible word] The Commission asked us to check whether we could let's say check for size and all the data that  we had showed basically that there was no differentiation in terms of how you comply with the ration, how you move from non-compliance to compliance. We then tried to see whether there was more stability in the ratio [inaudible word] of smaller banks as compared to larger banks so as to reduce the reporting frequency and naturally the ratio was more volatile form smaller banks than for larger banks. So we didn't manage. So, sorry, if you allow me a further 30 seconds. What I think is that we don't have a simple answer and I'm starting to think that it depends very much on the requirements. So there are some requirements that need to be the same for everybody. So DGS contributions, for instance, everybody benefits from the DGS, everybody needs to pay in the same way, [inaudible word] will say more or less the same thing. Actually, in many cases pay-out is more likely with the small banks than with the larger banks. Then you have some requirements in which, which might only need to be activated if your risks in the debt area are material. So if you have foreign currency funding risk: if you don't do it, or if you do very little of it, probably you don't need to report it and to respect data requirements. Then there are some requirements where you can do a complete [inaudible word] if you are a certain type of bank. Think of the resolution, recovery and resolution planning, why should you ask a bank to prepare to prepare a resolution and recovery plan when it is going to be liquidated with ordinary liquidation procedures, which is what we have proposed. So I think that we need to move into an area where maybe proportionality is becoming a bit more complex. And now you say Oh my God, this was supposed to be simpler and it gets more complex but I think we need to think of regulation, we are in the digital age we were discussing before, maybe also regulation is to be become a little bit more modular, you know I'M thinking about having an ability to select your own rules according to the type of business models you have, the type of business you make, done simpler. So that's the sense of direction.            

Thank you. John, a reaction to that. Are you reassured by what he said about templates and reporting? Do you think that's the right approach to proportionality? Christoph a reaction from you and then I'm going out into the room.                [00:38:35.14]

A short answer. Yes, I do believe that in the end it will be good. So that's a positive answer. I've got trust that it will be good. But I hope that the attitude that I see at DG4 within the ECB will change. Because attitude and standardisation come together. And I love the idea which you came up with: with digitalisation and choosing your own rules. I love it because it gives clarity to your model. So it could be something to work out but it will take quite some time I guess.        

Thank you and something will come back on the panel.              

So that's a short answer.            

Sure. Thank you very much. Christoph: There does need to be some, according to Andrea and according to Pervenche, there does need to be some account taken, you can have a level playing field while looking to see what rules should apply to different banks depending on what they do, is that not reasonable?       

Yes but again, I'm going to disappoint you.        

No, no not disappoint me, this is supposed to be a discussion.

First of all, I think that in terms of size there is already some differentiation on the macro regulation level. That does not affect the small banks. You have the additional equity that is required for the systemic banks and also as part of the TLAC. Then when you deal with the risk of the activity which is the micro regulation, the micro regulation is needed and it is rightly so. Also do not forget that legislation comes in various guises. We have minimum standards, we are talking about minimum standards, just minimum equity that you need. We have partial, full organisation. In Europe we have the choice between EU regulations or directives, what is a directive? Directives gives some leeway at the national implementation level so there, there is proportionality also. And there are already many other corrective factors to account for the size, the business models, other risk profiles, just name one and we'll stop there. It's the preferential SME risk weight as part of CRR.        

Thank you very much. Lots of other things to come back to. I'd like to come back to capital markets union and the relationships between that and the banks and how the two things, because you said you see it as valuable and added but not as substitute. Come back on that, come back on this call for evidence, the Commission process at the moment. But please, any questions to our panel or indeed comments to what you've heard? I'm seeing hands starting to go up. And could I ask you to introduce yourself and please be brief, thank you sir.

Jean Naslin, La Caixa. Actually I wanted to make a comment, it's not just a comment and I will challenge Pervenche and make her angry on this. Is it not the case that [inaudible word] of the European Parliament to have always been well aware of the fact that the European business model was very specific and there were different types of banks. Older regulation is pretty much Basel and FSB-originated. Very much inspired by the US model and also by the US regulators and that there is still a lot that can be done to adapt those regulations to the European environment. For that matter I think that the EBA and surely the ECB have a real duty to take care of that because we all know that there are huge differences between the way business is conducted in the US and the way it is being conducted in Europe. Proportionality is part of that but there are a lot of other issues and frankly I don't think that the CMU is going to provide the magic answer by intermediating in the economy which doesn't want to be intermediated.           

Thank you very much indeed and thank you for bringing that international into our discussion. There was one ... yes sir, thank you.   [00:43:05:00]

My name is Rudi Bonte from Deloitte. In fact I was a supervisor before for many years and this brings me to the dimension of supervisory cultures. I think that when we talk about proportionality we underestimate the still heavy burden of having so many supervisory cultures within Europe. So my question is very simple: first of all I think EBA is playing a very fundamental role, I refer  for example to the peer reviews, very interesting to see what comes out and  comparing international approaches, but let's talk about ECB because it was mentioned. We have a DG3 dealing with the less significant institutions. BY the way, we should not say less significant institutions, we should say local and specialised institutions. That sounds better. But what is the view of the panel on bringing the [inaudible word] under the supervision of the ECB. Having now experience one year of ECB supervision for the large banks.    

OK, thank you very much. Other questions or, as I say, very welcome to hear comments on what you have heard, if there are any. Anybody want to join in? OK; I'll give you another opportunity in a moment but did you see - ah yes, sorry sir, I didn't see you. Thank you very much.            

Thank you very much, [inaudible word] from Caixa Bank. I have a question about proportionality. Where to get proportionality in the sense of seeing whether the regulation cannot apply to local banks or certain parts of our relation. But I want to pose a question about proportionality of the regulation itself. I mean, if the regulation is now to intend and the possibility, the relation to establish certain levels below which the regulation will not be imposed. For example, I'M thinking in the remuneration guidelines that the EBA issued two months ago that I think that EBA said that maybe proportionality should be taken into account but that you couldn't take it into account but now we have on the table the new consultation about the remuneration for staff and there I don't see the proportionality issue. I mean, we're talking about bonuses, about valuable remuneration and as it is written now, if someone in a branch has 500 euros of bonus we have to apply to him these guidelines. What I don't think it makes too much sense because it's very difficult to apply.        

Let's give him a chance to respond. Andrea, two fairly specifically to you first and then you Pervenche please and then I'll give the others a chance to react.          

Well, very, very quickly. Basel and the US-driven regulation for global banks means first of all, Basel should not be US-driven.IO Mean everyone is complaining Basel by the sheer amount of Europeans on the table I think we could not only have a minority block but almost a majority built into the Basel table. So if it is driven by US it is just because the Europeans sometimes have difficulties in coordinating their position, let's put it mildly. Anyway, the Basel committee checks that the standards are implemented for international banks so we are free, and we do in legislation, introduce proportionality for non-international banks. So there's a choice there for the Europeans, it's not driven by the Basel table. On the point of remuneration, that's an interesting point. Let me try to quickly explain. Remuneration for risk-takers: we have the legislation which is plenty of references, with the references to proportionality; the problem is that let's say this has been interpreted in very different ways across member states,  with 21 member states applying [inaudible word]  for certain requirements and apparently legally. This is not in line with the legislation so we asked the Commission to make a proposal and change the legislation and our unanimous view at the [inaudible word] board was that we need some proportionality and some possibility for carving out requirements for very small banks and very small bonuses. It doesn't make sense to set up a huge mechanism for deferral, payment and instruments if you are paying to 2-3 people for very few euros.


On sales staff the guidelines are, in my view, to be applied to all because this is really the sense that you give the staff that deals with the customers. So this is particularly relevant in my view, also in small organisations. If you put an incentive on the sales staff to push products to the customers, irrespective of whether these products are in the interests of the customers or not, you are making a lot of problems and potentially generating, let's say, a lot of litigation issues. So I think that this should be at least principle-based.

Two words on the, and he'd object to the term, less significant banks and the ECB.     

Well, that's not, I hate to say, I'M sure that Karl-Peter will have a quick answer to that. In my view for the moment being that the ECB has a lot to chew in terms of harmonising the supervision for a large number of banks so I wouldn't see this as a matter for today but something to be reconsidered some years down the line.

Pervenche, a question about the international comparison, the US influence was directed at you as well. And then Karl-Peter I'll come to you.        

I might not 100% share the previous view because I do believe in Basel the European side is in a bad situation. I mean, I've been going through the implementation of all since Basel II was settled and seeing a process, we know the whole story, it's the same in the accounting standards somehow, we are an institution where the Americans are leading the process, also by their concept and then we are applying then and then on our side we invent (?) them well and then we have to deal with the TLAC. So obviously it's time, I don't know of the urgency of the proposal by the Commission if the first thing to do was to have the external representation of the Eurozone was to make sure or if it would have been much more efficient to make sure that the EU or at least the Eurozone would speak with one voice in Basel, I mean this is really critical, we are not in a situation we should be and I would have thought moving up to the banking union would have changed radically the situation but it hasn't so we are still here. We really need to push the argument. On CMU you wanted to...               

We'll come back on that in a moment.  [00:50:54.01]

But just one thing about proportionality. I mean, I've been a bit blunt and I apologise for mentioning a German model against a French model, I know that this is not so simple but I can tell you that when you are facing legislation you know where the lobby comes from. And when it comes to this questions of AnaCredits, it is really striking. I mean, we know the crisis, one of the striking things is that we were lacking knowledge, basic knowledge of what was happening in the banking sector. And if you are not able to collect this and it's not because you are small, if you are many, many small, it makes a big mass in the end. So you cannot say we want to have a consistent and need to have a clear vision of what is happening and escape with the argument of proportionality.      

OK; Karl-Peter, I'll give you a chance to respond and as we don't have a lot of time I also want to bring another element in here and get some thoughts. The Commission, I mentioned the call for evidence when they said Lord Hill, the Commissioner, said we had more than 40 pieces of legislation and we don't know necessarily as much as we need to about all the interconnections, whether the cumulative impact ... Presumably you would welcome the fact that the Commission did that. But this need to become not just now that we stop and check but we stop and check on a regular ... how could it work?         

You know Pittsburgh, no product, no financial institution and no legislation should remain unregulated. We should not leave any question unanswered. So please allow me to come back to the question on the DG3 and the small and medium-sized banks. DG3 is responsible for them, half of those financial institutions are located in Germany and even according to the balance sheet volume half of them are German. So we have some experience with the DG3 and the application of the supervisory manual of the European Central Bank supervision at the local and regional level in Germany, believe me. We are already subject to the supervision of the DCB even if it is indirect. But it is there and even the BaFin and the Bundesbank feel obliged, feel obliged to apply it. So there's no need for a direct supervision of those institutions by the ECB, indirectly it's already there. So second, the second question: I don't want to talk about AnaCredit but just allow me one sentence: there are more than 100 data points required but just a few of them, not even a dozen, are required by supervisory requirements. They are used for monetary policy. So if we come back to the need of supervision it would be proportional application of the reasons you mentioned.


Third point: Basel is made up for large financial institutions. Responsible for the application of Basel within the European jurisdiction are the European institutions and they applied those rules made up for large financial institutions even to the smallest bank in Euroland. So if we would have applied Basel we would have a two-tiered regulation like we have it in the US. That's very simple application of proportionality but it is, and let me quote one of the governors of the Federal Reserve. He said: we do not consider the supervision of smaller regional banks as a diluted version of larger banks' supervision but as an entirely separate undertaking. I would subscribe to that.             

Thank you very much. On this question of cumulative impact and these interconnections: presumably, Christoph, even if you don't think you should apply different approaches to different types of banks, which you've argued very strongly against, presumably it is wise now to, as Andrea put it, stop and check and see how these pieces of legislation are interconnecting, what the cumulative impact is and whether that is proportional for everyone. A thought on that and also from you Johan and then we'll come to capital market union, before we close.          

The way you framed the question, you already have the answer which is with the cumulative impact consultation, the approach has changed.        [00:56:02.11]

But do you think it is right to be doing that, is my question to you.        

I don't think it has changed for the better actually, no. Because we have not even completed regulation that we're talking about deregulating. The time when we might be facing a new financial crisis, so I'm a bit surprised. I also want to react to some of the things that were said.  

Brief ones if you would because we have very little time.          

Regarding the German bank system, the French bank system, I'm French, as [inaudible word] knows. Well, from a public interest point of view, the German banking system, and I'm not talking proportionality, is made up of roughly 1500 non-systemic banks that finance very, very well the Mittelstand that we [inaudible word] them. The French banking system is left with 4 big systemic banks, that's just to make the difference between the two. The other thing is the two-tier system, I think we have already a two-tier system in Europe with the ESSM and the SRM that covers 130-140 banks out of those 6-8000 banks so there is a two-tier system. And now I will finish because I think the way we framed the proportionality debate, I would reframe it from prudential deregulation, which is a little bit what was said here, to a level playing field. And the level playing field is more important. We should not, for proportionality reasons, deregulate the prudential side.            

John, a reaction to that if you would but also on this question of cumulative impact/interconnections between pieces of legislation. Do you think the Commission and the EBA are on the right track with that now? 

I don't want to comment on the set of prudential rules. I just want to have a - in Dutch we call it a boerenverstand - I don't know how to say this in English, it's having your feet on the ground - common sense - yes, but that doesn't give the extra flavour to it.  But if I just look at a few banks and not only my own. If you have to have a recovery plan, then sometimes you have to, well if you want to recover you first have to be sick. So you have to imagine how am I going to be sick? There are many banks, which is also important for you I guess, if you're doing Finance Watch, they have to really be very imaginary [sic] to become sick. And sometimes it can be worthwhile to do these kind of things. But there are also many banks for whom this kind of exercise is not worthwhile. That's one angle. Also in stress testing. If you really have to go to very strange scenarios, sometimes this is good to do the thing and for sure in the academic world. But to be a CEO of a company and really have to do this? It's the practicality which I'm complaining of, not the rule in itself, the practicality.             

Thank you very much. Pervenche, I want to come back on Capital Markets Union because Karl-Peter talked about it earlier about being valuable but added, not a substitute. We talked about different models in different countries. The Parliament has said, I think in a resolution last month, that it should not discourage, Capital Markets Union should not discourage and I'm quoting "real economy focussed relationship banking" which is what this sector does. How do you see the relationship between the two things and enabling this sector to play its full role in that big picture of a Capital Markets Union?      

Thank you for bringing this point in to this debate about proportionality because I don't know how this constituency [sic] is going to position itself vis-à-vis the topic of the Capital Markets Union. But it gives me maybe the opportunity to convey some very strong messages. I think there will be no Capital Markets Union if we are not finished with the banking union. It's not one or the other. It can only be one and the other. And in the banking union we are still lagging behind on two pillars: one is the deposit guarantee scheme namely, today [inaudible word] and everybody needs to take its part in this and up to now I still see more than strong obstacles, and this is not sustainable, because if you look, I'm not Portuguese but I can speak on behalf of my Portuguese colleague and in Portugal they have exposed their banking and their people to the risk of their bank being split apart by someone here in the [inaudible word] system, without a safe [sic] for them. And then they will be the only ones to pay for the system, for the consequences. This is not sustainable. And I'm not speaking about the bailing. Anybody who's looking at this ... and I don't want to embark in a seemingly new adventure that has been settled. Maybe there were good academic arguments for that but my main political intuition is that Jean Claude Junker was very strong on this, as a product of appeal for UK. But this is never going to be enough to put the balance in the discussion in the UK. So it's another topic now. And if the idea is to follow the US model, well, let's have a discussion: do we want to go to a US model where there's less intermediation by banks? Why on earth then what have we been doing to risk you to ensure banks are safe, well supervised, well organised, well founded and then move to a disintermediation? And when we are discussing financing of the real economy, do we believe a banker is useful or not? Come on, this is the kind of question we need to answer. No, no, I still want to have three points.

Very brief then, I need the others to be able to ….        

I will just say the three words I want: if we are going to be consistent about discussing the Capital Markets Union, I want this time to make sure we go to a round table to say why do we do it, to finance what? I don't to finance speculation with this, I only want to finance the real economy, digital world and ecological transition. Second, I don't want to discuss CMU if I am not going to discuss at the same time taxation and third I don't want to discuss CMU if I am not in the same time going to discuss supervision because I've been learning by doing.      

Thank you very much indeed. Other thoughts, other comments on this. Karl-Peter, you mentioned it at the start, do you want to come in?  

Well, I agree with almost all that Pervenche has said except with one issue that is the banking union but that would trigger now a discussion about the problems the European Union is facing today in general. I think the banking union is complete and in the pillar of the safety of the deposits it was completed with the deposit guarantee scheme directive. EDIS is just adding a new transfer mechanism and I think that's what people all over Europe are rejecting now, perhaps with the exception of those countries who would be the recipients of such transfers.  

Thank you. Andrea, just a work on how you see Capital Markets Union in this bigger picture and then we'll come to some conclusions.         

Thank you. I know I don't have time but let me say that I very much agree with John on the point that if proportionality is an issue of deregulation, let's say that I'm not listening, let's say that proportionality is an issue of let's say, checking whether I can achieve the same prudential objective with less burden, then I am listening very much. So that's a point I want to make clear. On the Capital Markets Union let's say for me the key issue is SME, SME financing. I think that there is, as usually happens sometimes in European projects, there is a gap between the rhetoric, or what we are selling or what we are actually delivering. So the securitisation project has been sold as a sort of way to support SMEs. I don't think that the simple standard and transparent securitisation will help SME lending. There could be, we made a proposal in our opinion at the end of last year, there could be a way in which I think we can help banks lending to SMEs to package their roles which is, the label is awful, it's synthetic securitisation, but this is a case in which we have guarantees. Guarantees from public bodies or cash collateral from private bodies, insurance companies, hedge funds, whatever. In those cases you can have actually a way for reducing the risk for small banks of lending to SMEs. I think that could be an important element.


CMU, the other point I would make is that the experience of the crisis is that we are not good in restructuring. We don't have a legal framework which helps restructuring fast. I must say the US has been much faster in dealing with non-performing loans; we are 8 years in the crisis, 4 years from the peak of the crisis: we still have one trillion non-performing loans in European banks and it's still very difficult to deal with them. So if we manage to have a regulatory framework, a legal framework that harmonises more and allows to deal with this issue faster I think we will help all sorts of banks.         

Thank you very much indeed. OK we are out of time but before we go and I'll start with you this time John because I came to you last on the first round. One thing you think we need to do, of all the issues we've raised if we are to achieve the proportionality that you seek or in the case of Christophe, if we are to address this issue, get that balance right for the future. What do you think the most important thing they need to do to deliver the proportionality that you seek, that lets you, as you said, do your business.       

I'd like to invite them to visit my branches and see what's really going on in banks at this moment in time.                [01:07:30.21]

OK very practical suggestion, I'm sure you can exchange appointment details later. Karl-Peter?            

Well, proportionality must not be discussed at the end of the legislative process but at the very beginning in the Commission and the Parliament and the Council if we want to achieve proportionality being applied in regulation.      

Thank you very much. Christophe?       

A quick comment for I feel frustrated for not having been able to speak about CMU. 

Ah sorry! Time is against us.      

Yes, I understand. Linking proportionality to CMU is smart lobbying but actually I think it's a bit dumb because it's totally irrelevant from our point of view. So answering your question, the one priority in terms of proportionality that we would recommend is to restore a level playing field. That's three things: first, to do the bank structural reform; second, to do Basel IV, i.e. Basel IV is to make sure that in terms of higher biz (?) and I don't think that the smaller banks could disagree with that, we have to change that. And third, because we didn't mention that fintechs should be regulated. The fintechs, like the small banks.             

That level playing field on both sides.   

But keep the prudential regulation.      

Thank you very much, I'm sure we'll come back to that in our last session. Pervenche and then Andrea, Pervenche first.     

One thing to do: make sure the banks you are representing go on financing the real economy and boost investment because this is what we are desperately looking for and don't come to my office telling me you don't have enough projects to be financed because they come to me and tell me you're not financing them. So this is one thing. And the other thing is have a second thought about EDIS because it will block the whole system.  

Thank you very much. Andrea, you have the last word.              

Well to me the key point is keeping the right balance, keeping proportionality within the single rule book, I mean that's the challenge. So not to have proportionality declined by [inaudible word] or two-tiered systems in which something is national, something is European. We need to have proportionality at every European level and make sure that the same risk the same situation is treated in the same way across the Union.           

And on that note, ladies and gentlemen, will you join me in thanking our panel very much indeed. Thank you to you all for your frankness and a very lively exchange on the issues. As they return to return to the comfy seat can I please ask you to take your voting pads in hand again because I'd like to get your opinions on the next issue we're going to discuss as we move to the issue of digitisation again and the relationship between regulation and digitisation.  


We've heard so much as about this very fast-moving landscape: Jan at the beginning describing a very different world to the one that we have known. How do we make sure that the regulation keeps pace? We heard a suggestion earlier, I think it was from Andrea, about a modular form of regulation which might work for the future - is that an idea?  But let's first get some opinions from you. So, again voting pads and it's A, B, C; your first vote counts when I open the voting. So could we perhaps have our first question up?


Do you see digitisation as more of a threat or an opportunity? This goes back to the balance sheet I was asking our first panel about, that was on the broader context but now specifically. Are you embracing and thinking this is a great new world in which we can do so much more or are you thinking this is a world full of rivals, fintechs, etc., and they are killing our business model. Do you see it as a threat or an opportunity? Let's have the answers coming up. Your options are:


A - you see it as a threat. It poses enormous challenges and non-banking rivals are gaining ground

B - you're an optimist and you think it's an opportunity. It's transforming business models and opening up new ways of serving customers, going back to what Isidro said right at the beginning. Or

C - it's both. There are challenges, there are opportunities and pretty much your balance sheet would have them in equal measure.


Let us open the voting: A if you think it's a threat, B is you think it's an opportunity, C if you think you can see good and bad in it.


OK, so if we are all done, let us close the voting and have a look at the results if we can.


OK, only 13 % of you see it as a threat; 40 % - that's very striking because although nearly half of you, as might be expected, see it as both, very striking how many more see it as an opportunity than see it as a threat. So an interesting result there I think. 


Let us have, if we could, our second question: are regulators doing enough to ensure a level playing field for all those offering financial services in the digital economy? We heard in the last session about the level playing field being a two-sided issue but here perhaps focussing on that, the non-traditional banking sector, the fintechs v. the traditional banking sector. Do you think we have a level playing field? Let's have a look at the options:


A - yes, the current regulatory regime is fit for purpose. If you think that, vote A.

B - if you think that banks are subject to much more stringent regulation and it's unfair, then press B.

C- and if you think, linking us back to our last panel discussion, it will work if the rules are applied proportionately, then we can have the level playing field with the current basic set of rules that we have.


So: is proportionality the answer to this issue or do you think actually B, no, it's unfair and we need to do something much more radical. Let us open the voting now. I can see some furrowed brows so I'm giving you an extra moment. OK, let's close the voting and if we can see those results - lovely. Only 5 % of you think it's working as it should. A massive three quarters of you, the biggest vote we've had so far, thinking it's unfair. And proportionality seen as part of the answer by one fifth of you, interesting there.


OK, let us go to our third question. This is more personal because one of the issues when we talk about digitisation is - and it's already been mentioned - data. A huge issue, a very valuable commodity, people have called big data the fuel of the modern economy but it poses some regulatory challenges. So the question is very personal, I just want to know from each of you individually, not as a banker but as a customer: would you accept your bank using digital technologies to exploit the personal data it holds on you? Let's have a look at those options.


A- yes, if it leads to better service but not just to bombard you with general marketing. So yes, to give that tailor-made service that Isidro talked about first, you think you would allow it. That would be A.

B- but only if it's anonymised. So they're using the big data to get general pictures about people but not specifically to you.

C - no, you really don't feel comfortable about your personal data being used as part of a bank's marketing strategy.


This is a personal one so I'm going to give you a little bit more of a moment to think about that. So how do you personally feel about the use of your data and it's interesting whether this one is, I think, going back to Jan's point earlier about younger generations, whether we can't tell from the results of this whether there is a generational difference in how people answer this.


OK, are we done? Let us close the voting then. And let's have a look at the results. So 49 % of you are pretty relaxed about this issue. 29 % of you quite relaxed if it's done in the right way. But that's remarkably high for an audience like this. Over one fifth of you do not feel comfortable with your personal information being used. Now, if there was a suggestion in the last panel that perhaps the nature of this audience skewed the results, I think that tells you that actually that's probably one of the hardest issues. I'm fascinated by that result. OK, than you very much. Voting is over, could I just remind you now at the end please do not slip this into your pocket inadvertently and take it home, you need to leave it behind.

Panel Session 3: How regulation needs to catch up with digitisation


So, let us bring up our panel to discuss those very, very interesting results. And please do come up as I invite you on stage. John Broxis who is managing director of MyBank, there we are. And John will tell you a little bit more about MyBank, many of you will already know it. Please, if you take your seat, that's lovely. Claire Bury, who is deputy director general in DG Connect. A very warm welcome to you, it's great to have the Commission joining this very important discussion. Sergey Filippov, associate director of the Lisbon Council. Sergey, please. And Antonio Massanell, vice chairman of CaixaBank, a very warm welcome to you too. Please make yourselves comfortable. I'm going to stay on the end here, not because I want a gap between me but so I can see you all to have our conversation. We're going to do this in the same way as we did the last panel, I'M just going to get us started, ask the panel a couple of questions and then come out to all of you. And I should say at this point, if you've been reflected on our discussions in the other sessions and feel there's a burning point you'd like to make related to any of the issues, this is your last chance today so please, I will give you an opportunity to do that.


So we had some very interesting results. Striking that the sector sees innovation more as an opportunity than a threat, although many seeing the balance. Also striking that most of them think they're not being treated fairly in relation to this. So I just wonder in terms of, John, perhaps I could come to you first on this: how much - you're in payments, e-authorisation, you are part of this great new world that we are talking about. What do you think, what are the implications for the regulatory environment? Are we keeping pace? Do the regulators need to change their approach in order to let you make the most of the digital revolution while addressing some of the big concerns. Over a fifth of the people here have a concern about their own data.            

Thanks for the question. Perhaps I'll say one or two things about MyBank first, who we are and how it fits in, not really for promotional purposes but just to explain the setting. MyBank is promoted, was created by a company called EBA Clearing which is owned by the 50 biggest banks in Europe. And before this role I was director of Step2 which is a clearing system linking all 4 to 6,000 banks in Europe together for a payments infrastructure. So we're a funny animal in the sense that we have a foot in this new digital fintech world but we're also very classic, very conservative, we are running 2 of the 4 systemically important payment systems in Europe on which our economy depends. I'm very interested in making sure that the same stability moves forward into the digital world, along with the innovative regime. MyBank was created to bring banks together, to open opportunities for the exchange of financial data, but also non-financial data so I'm very interested in your comments on data and the poll that you had about personal information, we'll talk more about that shortly. And broadly I would say that in terms of, to answer your question about regulation: firstly, that regulation already has done a huge amount for innovation in Europe and we mustn't forget that. I think we're too quick to overlook the achievement that is SEPA in terms of uniting half a billion people into the same common set of products. And it broadly works; I do have examples of where it doesn't work and I would like to see regulators perhaps pushing some the - the rules are there, it's just that they're not always followed. For example, in IBAN discrimination, where even we as a company have had issues, we're a French company, we have a French bank account, we have German employees, the German car company won't accept the French IBAN for the leasing for a member of staff - this kind of thing. So yes, we can get fantastically excited about blockchain, Bitcoin, EID, the open banking but there's still some basics that need to be worked on. So that's one point. But very quickly, I don't think regulation is there to keep pace with the leading edge of innovation.  Regulation is there to let - when it starts becoming mainstream - to make sure that everybody has a good level of safety and security and trust, not that every last little app that's out there suddenly falls under a regulation all the time.                [01:19:18.06]

But there is a question there: if it's not to keep pace, can it become mainstream, does the regulation sometimes risk that it can't reach that stage but we'll come back to that I hope in the discussion. Interesting echoing there what Jan said when she talked about regulations - a guiding force, I think was the phrase that you used Jan - so both echoing each other there.


Claire: from a policy-maker's perspective, we've talked a lot today and we've heard a lot about this dramatically changing landscape and how fast it is changing and the challenges this poses for the sector and indeed those opportunities we heard about there. Do you feel that you, as policy-makers, are keeping pace? Do you see this as a major challenge for the future?               [01:22:02.20]

Basically I think I'd say three things. First of all, having worked on banking regulation before, during the financial crisis, of course I recognise the great pressures and challenges that the sector has been under. But also I think that it's now making a big investment in terms of trying to use the potential of digitisation. So from the Commission's perspective what we're trying to do is to encourage you to do that even more and I think what was very interesting is the response to the second question there, that it is very much an opportunity. So when we come to the question of regulation, can we keep pace with it, are we getting it right? I think above all we have to make sure that the regulation allows you to make the most of those opportunities, of course in terms of the level playing field, we understand that.


I think I would very much take my cue from what John's just said though which is that we need space for innovation. Innovation is good, especially in this area in terms of bringing competition. But when there are risks and the risks are obvious, then of course regulation needs to step in. If I take the example of payment services, I think there what we've tried to do is to help banks make the most of the opportunity and the internal market, encourage them to scale up business so that they can provide across the internal market, but also if you take the very specific example of the PSD2 there, of course we have an opening for innovators, but subject to various terms and conditions. There are other areas we can look into, I guess we'll come back to data and so on maybe in the next question.          

Thank you and that point you made about investment, just I'm not sure if you were here in our first session because we asked a question about the relationship between regulation and investing in innovation and it was quite striking because over a quarter said the cost of compliance with regulation drains resources from investments. One fifth said no, we're investing heavily anyway, whatever you impose in terms of costs of regulation, we're still going to do it. And there were those in the middle who said it's making it harder for us but we are still investing. So as you say, a lot of investing going on and we've heard some example, but getting that balance right.


But let's come back, Sergey, from your perspective, how do you see the challenge for regulation and digitisation?     

Thank you very much. I'm from the Lisbon Council. Also I serve as the social director of the European Digital Forum, it's a think tank to promote entrepreneurship and digital economy. So I will just to start first with a look at the capital markets union, the green paper. I'd be quite surprised basically that digitalisation was not taken into account, did not take central place in this paper. So we published a policy brief which I have copies of that. We called for a mandate for Digi Connect and Digi Wi-SP to collaborate and to make legislation fit for the digital age basically. Also we had a policy round table quite recently. Digi Connect and Digi Wi-SP they came together and they talked about digitalisation of financial services which is very good. Also very good now, we see the specific green paper on retail financial services from Digi Wi-SP. It's also very good they specifically emphasised digitalisation, it takes central stage in this paper. Also we just talked about digitalisation generally; I think the financial sector is the most digitised industry in the world. So we see all the data from consulting companies, I mean [inaudible word] much more digitised than things like construction and buildings and so on, real estate. And banks have been at the forefront of digitalisation. So now we have think tanks also coming, fintech, all start-ups coming to the stage and I'm sure we need regulation which is proportionate, which is valid for the same activity. And there's also someone here from the European Commission so we need to regulate the same sector, the same activity and the same levels. So it's actually the same, regulation applies to all players.        

Thank you very much.


Antonio, I wanted to come to you last because we heard there the financial sector is the most digitalised in the world. Your bank has won awards for the technological innovations that you have already made. Do you feel the regulations are keeping pace, are enabling that innovation or potentially holding you back? Are they getting it right?                [01:27:31.27]

Thank you. I think there are two different views about this. Innovation by itself is something the financial services, it's absolutely necessary and we need to move in this direction, there is no other path. It's a very hard transformation for this industry but in another sense when we talk about regulation, regulated with digitalisation we need to think that we are not talking only about financial regulation or Brussels 3 etc., we are talking about the regulation of the digital society because that is very interesting to analyse the new digital single market initiative because that will regulate the relations between all the digital services. And I think that one of the main focuses of this new regulation needs to be placed on the European citizen. The European citizen is the key of all the digital revolution. If all these regulations don't put the focus on the rights of the European citizen, that will make a mistake. And I say that because we are very worried about the different transformations of the industry etc. We are asking about if we are worried about the use of data that the banks can do and nobody talks about Google or Amazon or Facebook or What's App of any other of these fintechs that use the data in the way that they want without any protection, any guarantee and I think that we in the banking industry we have, you know, a practice, a good practice that it's not only regulated but it's also based on our experience that protect the rights of our customers in the best way. I think that digitalisation and regulation of digitalisation needs to start protecting the European citizen.  

Thank you very much.


Claire: just in terms of this balance to make sure that regulation indeed does enable rather than hamper innovation, while addressing all these other issues that we've talked about, could you say two words about that and about the digital single market strategy. You've also had the green paper on retail financial services which highlights the digital revolution in this sector as well. Just in terms of the approach to making sure that innovation, and as you say, drives those investments that you underlined as so important.           

A comment as well about the banking industry being the most digitalised industry at the moment. I think if you look at it more broadly you can see that most service industries are massively affected by digitalisation and very quickly. By the same token that you are thinking about what the fintech companies are doing, of course service providers are thinking about what Uber and AirBnB and so on are doing across platforms. So the Commission's looking at these issues in a holistic way as part of the digital single market strategy we have a consultation on platforms in general. It was very broadly drawn up and we were partly criticised for that but I think it was normal at the time, having a consultation. But of course, and I think it comes from what Antonio said as well: we're looking at a whole range of different operators across the marketplace and on the issue of the platforms and what they're doing - of course there are some very high profile competition cases going on at the moment. The question is, how much can competition law here step in and help? And to the extent we find there may be gaps, do we need to regulate? On the question of the data, which I think is one where I think we've got the most difficult issues about how we get the balance right; obviously we want all companies to be able to use the innovative impact of big data because for you it's about, of course I'm talking about the single market, being able to leverage up, being able to use the whole single market, but it's also for you in the banking industry to be able to keep the competitive advantage and respond to what your customers and clients want and you know that very well because the relationship you have with them. You need to be able to provide value added services that are going to be useful. So there we need to know what is the difference between personal data, of course we now have the new regime, the GDPR, which hopefully is now more modern and not dated, also in terms of one-stop-shop from the regulators and so on. But of course it's new and it will need a lot of explanation round how it's going to work in practice.


But then the big question is: what about non-personal data? Machine data, anonymised data which also came up in the questions. And in the digital single market there we have an initiative which is called the free flow of data. Admittedly I think that title can give rise to very quick misunderstandings about what it would cover. It's not about requiring companies to give out personal data on their clients; it's about how do we get this balance right in terms of being able to localise the data, where you might want to have it in one member state other than another, or certainly move it around the internal market.


We think we need more clarity on that but also on the question of who owns the data because most industries, not just banking, tell us that if you're going to invest in using the data and making added value services on the data, then you need to know where your ownership starts and stops. So I think that's an area where we really need to strike the right balance and that's an upcoming area.

A comment on, let's go straight because as you say it is of the two new regulatory challenges, cyber security was mentioned in our first session, this question of big data is probably the most difficult and that ambivalence reflected in our own poll about how people feel about it. It is crucial to your business model, Antonio, because you have the proximity to the customer through your local branches but now increasingly through using these technologies. How do we - interesting suggestion from Claire, saying actually she thinks there's a lot more work to do in this area.                [01:33:38.22]

I think it's very important to develop the criteria of ownership of the data. In our case, in our bank well we do that, we consider that in some way the customer has a long history and makes deposits and makes his money in our hands and it's a kind of trust within that his data is also some kind of deposit. The owner of that data is the customer - always. We can use his data to serve better the customer, to offer the best services or even to return these data in a structured, in another way that permits, I don't know, better administration or to know better how he spends his money or any other kind of things. But I think it's important to face that in a digital society all the data related with one person needs to be owned by this person because that will avoid a lot of abuses. And then to keep these data in our facilities, it's something because the customer wants to give us this right. And an additional concept that we need to develop in this digital society and in the regulation, in the digital single market, it's very important to consider, is the right of the customer to erase his data. This needs to be a function that will permit any person, any European citizen, to erase his data from any computer, at least from the computer of his bank of form the computer of his telco company or whatever. I think these are very simple criteria that permit that everybody lives better.          

Thank you very much. John, you mentioned this right at the beginning. Two words on this if you would and also because the nature of your business is designed to address this issue of cyber security and it was mentioned as a key challenge in our first panel this morning. So two words on both, if you would.        

I fantastically support what Antonio's just said about the way of looking at it, that the customer data must always be the customer's asset and I would love to see the banks step forward much more clearly in taking leadership and saying we are your banks for your financial assets but also for your data assets. And part of this is around helping - you spoke of platforms - one of the benefits of a Google is it's more or less ubiquitous. I can be a user of Google but anyone else can also use it and get data in some way as well. What doesn't happen within Europe within a banking context is that if I'm a customer of CaixaBank but I want to use my data to prove who I am with another organisation, who is not a member of CaixaBank, there is no link between the two. And so within the MyBank setting, what we try to promote is, we see at MyBank the logo is the shape of a key because this represents two things. The key is a very powerful symbol. Firstly it represents locking up your data, keeping it safe, protecting it. You don't want identity theft. You want to respect your privacy. You don't want that data to be used by third parties in was that you are not happy with. So using the bank security systems, the banks are the regulated entities that are trusted more than any other elements in our society to respect our data and look after us, we must leverage that asset, the banks must leverage that asset. But at the same time the key unlocks, it gives trust, it enables and I would like to see the banks coming together to offer consumers, especially in Europe, a sort of alternative to the Google type platforms or the Amazon, Facebook... I don't think any one bank, I don't think CaixaBank or any other single bank is going to step forward and win this and sort of knock everyone else out and create this sort of European Google but collectively, the banks can become a platform, as they've done in the payments network: I can drop a payment into any bank and it'll pop out at the other end of any other bank with full security and certainty. Why can't we have that for data, not necessarily in a marketing sense, I'm not sure it's about big data and marketing but it's about creating trust on the internet. How can I do business with somebody I've never met and can that bank stand in for me as a third party, as actually it did 500 years ago when the bank would have written me a nice letter as I took my cloth from Lincolnshire to Venice or 10 years ago when I moved into a new flat in Paris and the bank wrote me a letter saying that Mr Broxis, he was a nice person and he was very good and he had a bank account and you can trust him. That's the kind of enabling we need to do in a digital world. It's new, but it's also old. It's about just following people and empowering them.       

Thank you. Sergey, a thought on that more broadly, not just on the financial sector but more  broadly this trust in the internet and how crucial it is to get that right in order to make the most of these opportunities.            [01:39:00.06]

Right, my first point of all - data. I think it's very crucial, also I know some example in the Netherlands, famous banks so they tried to provide customer services but the communication was not good so there was a hugs scandal so people thought OK their personal data would not be used properly. But I think it's also about information so you can inform people that this was for your benefit. Also we know the case in the UK: data from banks are shared with members of Parliament so it's anonymised and then it's for social benefits so they can see immediately the impact of their legislation, of their regulation in real time from banks.


Talking about trust: I think obviously banks are the holders of trust, although we can discuss now after the economic crisis but compared to, let's say, start-ups, they still keep trust. Now we see a different model - all the start-ups, all the things like blockchain, so it's distributed trust. We also need to think about regulation now. It's a different way of how we mange that.    

And thinking about regulation, there's just one more question before I go out to the room. This question and Andrea Enria referred to it in the last session when he talked about the future and how we're going to keep pace with the speed of change, and he talked about possibly a modular system where, depending on your type of activity, you can take certain parts of the rule and say I'm in that category and those are the rules therefore that would apply. More generally, we heard a plea at the beginning of the last session from John Heller for stability and this was in relation to something very specific. He said, we got the templates, we got it right and then you changed them all so we had to start all over again. How are we in a broader sense, and in relation to innovation, have the stability and predictability that your sector needs in order to be able to invest and make those investments but have the flexibility to respond to this very fast, going back to Isidro, it's all about adaptation: how do we have a regulatory system that can do that? Antonio first.

If we want to survive we cannot wait for regulation and then we need to move by ourselves and we can cooperate. John says MyBank it's a nice experience to create platforms at the European level and to introduce new service. Well, let me put an example: there are [inaudible word]  5, 6, 7 years there is a system to send money at the same time usually from one person to another in the [inaudible word] but the banking industry doesn't reach the success to send money in the Eurozone instantaneously from one person to another. Now thanks to SEPA and the RPP probably in 2017 we will have a protocol to permit to do that. The digital revolution moves very fast and regulation will not save us. Then regulation can help but we need to take the initiative.   

Indeed and the whole point of about innovation, Claire, is it's disruptive in its very nature. A thought on this if you would.

That's what I wanted to say: whether we like it or not we live in an unstable world and we see that all the time around us. Technology accelerates the effects of that and we welcome that a lot of the time, this disruptive technology. Of course, at the end of the day what we don't want is a completely destabilised society which is, I think, why you were making the point as well about you have to put citizens at the centre of all this now. I think the big change that's happened is that of course digitalisation was something that was maybe being discussed in this room 15 years ago by experts but now it's something which affects all of our lives. I mean, as businesses, you have to understand what the implications are for your business and you mentioned the generational point before as well but I mean most of our kids, its second nature to them these days, they don't even question whether they trust buying on the internet, they just go ahead and do it.    [01:43:35.10]


Yes, again I don't think it's for regulation to be at the leading edge of everything that's changing but the Piers Ti 2 is a good example of something that in terms of time that I think is broadly correct. 10 years ago some innovative things came up, Ideal was created in the Netherlands as a very nice payment mechanism using banks and other ways came forward. SEPA happened but then some other things happened that were in the grey areas of law: were they allowed, weren't they allowed? Screen-scraping and taking users' credentials to make payments for them, different kinds of wallets. And it's taken until now for the Piers Ti 2 to come in to come down on the fence one way or another. Which is about the right length of time I think. There was enough time passed that you could see that this phenomenon that was going to gain some traction. Probably the banks should have been quicker on these things and actually they voluntarily offered services their customers wanted instead of leaving this space to others, they didn't move fast enough or couldn't move fast enough for whatever reason. And now the regulation comes.


I think on the identity side, clearly there are problems with using data for identity verification across jurisdictions because there hasn't been a harmonised framework. And now we have the EIDS legislation which is a good step in that direction. But we also need to let people get on with the job and put some products in place and try to see if it works or not without reforming legislation that's not even yet final, Piers Ti 2 is not even live yet and probably won't be for another 2 or 3 years. So there's a lot of not-interfering to be done as well to see where things go.         

Sergey, a though on this general question. I like that, a lot of not-interfering to be done. Active not-interfering: interesting concept. A thought on that and then I'm going out to all of them. Please, how do you get the stability and flexibility?          

Well, obviously it's a difficult question in how we regulate the digital age when technology is changing every day. Generally, a general thought about regulation in the European Union, it takes almost 5 years, from the moment the European Commission would propose regulation, then implementation in member states. So it's very long now, it's impossible. So it's also regulation should not be perhaps technology-specific so it should be based more generally on principles. And I always say we should avoid silos, it's a good discussion today about regulation from DigiConnect, regulation DigiWi-SP so it all impacts ...

So joined up thinking between the two. Claire, can I just the room involved and then that will give you a chance to react. I just want to make sure that we do have time if there are burning questions or comments. And Jan wants to come in so I'm delighted you're coming back in on the discussion, thanks.        

...slightly to the regulation, and you know how we're regulating and innovating. In the UK we have a great project which started about 18 months ago which is called Project Innovate, which is where the FCA's regulator and so far from what's come out of it, the discussion that's come out, it's actually been hugely advantageous and speaking from experience from a company that wanted to innovate, we wanted to bring blockchain and Bitcoin into our platform, we went to a very well-known bank and told them this and they said, could you just not tell us you're doing that otherwise we're going to hide under the table because we don't know what the policy is. And so by launching Project Innovate with FCA it basically gave us a sandbox (?) environment in which to be operating in. And that was great because they saw that this was a point where they could be learning as well and I think that this is to really regulate nowadays because of what's happening in digitisation, start-ups are coming in and the whole banking sector is becoming far more fragmented. Actually, collaboration is what it comes down to. And we have to be far more open about big banks being very happy to learn from start-ups and start-ups not turning round, going: do you know what, you messed up the first time, leave it to us, which is really what the attitude was from about 2008 onwards.           

So it goes back to something Isidro said right at the beginning about working together. Right, over here and then I'll come back.


Thank you very much there.     

Thank you very much, José Maria Mendez from Cecabank. Well, I would like to point out another European Commission dossier which is the green paper on retail financial services. And this European Commission project is to promote more cross-border activity or more cross-border financial activity within Europe. We have great segmentation in retail banking in Europe and this could be another project to promote cross-border activity. I think regulators achieve a harmonisation of the financial services providers, we have a common regulation for banks, for insurance companies. But there is a lack of harmonisation in terms of product. That's why we don't have enough activity, cross-border activity in Europe. And I wonder if we have now an opportunity with creating new common products in Europe, like, for instance, Euthys (?) works in the past in order to promote more cross-border activity and I wonder if digitalisation could be an opportunity here.       [01:48:03.07]

Thank you very much and I think the figure in that green paper: 4 %, only 4 % of credit cards, mortgages, current accounts are taken cross-border. Does digitalisation ... I'll come back to that , you've both had the floor actually so I will come here first and they to you madam.    

Thank you Jackie.           

I was wondering, I'm not very good at putting questions but I'm good at making comments.   

It's alright, that's fine, as long as it's brief.         

I think this is really not an issue of just go ahead and do it. It's about striking the right balance between just go ahead and do it, but also who is going to take the bite at the end of the day and this is where digital competition comes in and probably in a very dogmatic way which probably require a bit more smoothness in the way we're addressing these issues. Now having said that, this is not the time of asking to question of whether we should do it or not do it, it's a real world, we have to do it. It's about going ahead and seize the best opportunities we can seize. We are in the forefront there and so it's yes, indeed, go ahead and do it.      

Thank you very much indeed. And coming over here, it's very good for me, it gets me fit before lunch. Thank you very much.        

Thank you, Marieke van Berkel again, EECB. I would like to ask the panel to elaborate a little more on the concept of a creating value based on your customer data because the customer data are his but once you have his data you start processing them and you do something with them. So what's the definition, when are you adding value to those data and should the financial sector or any other sector be allowed to monetise them because what you see happening in the Facebook environment is that they don't monetise but they actually, the commercial business case comes from advertising and perhaps re-using the data collectively and selling them on. However, if you look at Piece (?) 2, for example, the bank customer data, which banks have potentially processed, are now being made available for free to third parties. So you comment a little bit more about that?

Thank you very much. Any others because it will probably be our last chance to, by the time they've answered all that. I've asked for some priorities and then we'll be done. Jan, you wanted a quick, OK quick!             

It's effective just what John said about banks are still the most trusted in terms of data. I'd be really interested to know how many of you on the panel have sent your bank manager of your children on their birthday or wedding picture.               

Sorry, could I ask why would I send my bank manager....           

No, you wouldn't, but you'd put it on Facebook. The point is, you shared that information with social platforms and so I think maybe right now most of the generations in this room would agree that banks are the most trusted but actually we are seeing a role change in terms of what we're prepared to share with banks. Because if my bank were to ring me up going: when do you think you might have children? I'd probably tell them to sod off, but actually on Facebook they could probably tell when my friends are having kids.    

Right. I see your point, thank you very much indeed.


Claire, and I know you wanted to come in and if as well as reacting to all that, this question about the speed of regulation and whether you therefore have to do it more on general principles and so on. I know you wanted to come in there. 

Sure, and that's why I wanted to come in and it's been picked up in the questions as well I think. Obviously I think that's what Sergey's said, which is that we have to do the regulation in a principles-based way and it has to be technology-neutral. But these things are motherhood and apple pie. What does that mean in practice? But I think what comes in then is the point that you made and others have made, I wouldn't say collaboration because that's slightly negative overtones but cooperation between the regulators and the industry. Maybe even more than ever was the case before in this area. I would say they have to work together in a progressive way. Now to come back to your point, John, about the benign, not-interfering regulation: I think that requires a lot better understanding on both sides of the banks what technology is all about and on the technology side what the implications are for banking. So we've started, people refer to already that Connect and Fisma are working together but I think this is really something that needs to be reinforced. I know Commissioner Oettinger is now going to have a round table as well at the beginning of April which we hope can really give that cooperation a push. 

Thank you very much. Other thoughts to that or indeed the many issues raised. John?              [01:53:56.10]

Certainly. In general terms of trust, a funny one. I think a Swiss research company did a survey to understand which company would leave their children with, leave their babies with in terms of child care. And companies like Google and Facebook scored very badly whereas companies ... if you had to leave your children with a bank, people would sort of be happy. I'm sure if MyBank gave me a free email address, I'd be happy to use that email address, knowing that all my data was on their servers, I wouldn't really think twice about it. It's interesting, competition authorities got mentioned because I know the banks, it's quite a sad story really, where different regulators at different points have had slightly different pushes on what should be happening, certainly in the e-payments space. The ECB called the EPC to look at certain schemes, bringing schemes together. EPC went down this road, perhaps not in the most clever way but still. Then the competition authorities came in and felt this was the banks colluding in some way in order to keep new entrants out, whereas I think they were not, they were broadly trying to cooperate. And then with Marieke's question of the monetarisation of that: if there's no business model behind it, what's the point? People have to do things, because we're in a market economy, and they have to be able to make money out of this. So I think an understanding that while a customer's data may be their data, if a service provider is going to start doing things to that value, either to the customer or to the person that the customer is trying to do business with, then some value must be taken, in the same way that when I give Facebook my data, I'm not giving it for free; I'm not paying them money but they're worth billions because of my data. So there is a transaction happening there and is there a way we can be more intelligent in opening that out. But that's a very difficult conversation to have in a collaborative/cooperative space.           

Thank you. And Antonio, please do pick up on any of those points. But also if you, perhaps on this question of cross-border activity and why it's so low now, why so few people go across border for their current accounts, etc. and whether you think digitisation here an open up new opportunities for you in that area.            

Well, now it's very difficult because regulation it's different in each country. Saying that, I think that green paper on retail services in Europe will be a good opportunity but only, in my opinion, for banks that are digital or only for digital banks. Or only for fintech players. Because it's very difficult to expand physically in Europe and then this is proposal for a digital alliance, in my opinion. Coming to the fintechs: I think that the fintechs are a very good stimulus for all the financial companies to move, to change and to go ahead. Really what fintechs do is all what the banks don't want to do. And if we want to do, we can do because we have more information, more data, more capacity, more capital, more experience, etc. And then there's a fintech that does things that we don't do. That's because we don't want to. And then saying that, I think there is a bubble on the fintechs, probably the market has added to innovate by creating a bubble that will exploit and some of these fintechs will be very successful but the major part of them will disappear. Saying that, we need to try as a banking sector, try to survive. As Mr Fainé says, we need to change to survive because being static is not the solution. An example of the use of big data in a bank: for example, something that all the fintechs do: pre-approve the credit. That means we need to pre-manufacture the credits, the consumer loans, the mortgages, etc. because we know our customer because we have all his financial information and then we can decide before a customer asks us about a credit, we can approve all the credits. If we do that, the concept of the product changes completely. A credit it's not only a credit for 5 years that you pay monthly, it's a relation with a customer. And that's an example and we do that at Caixabank also. And I don't know if there are any other questions.         

Thank you very much. I want to come back on that point about the fintechs, I was very struck by something you just said. But before we do that, Sergey, any reaction to the points that were made and then we'll come back to this because I want to come back to the level playing field and that issue. But first, any other reactions to what you've heard. 

Just a couple of points about data. It's personally, it's final to a promise, for example for banks to have any data so they can have the story of my life when they pay, when they buy things so they can immediately offer me best products so I think, I'm not sure to what extent general data protection and regulation will allow it but I think we should be more kind of open to that.



About cross-border like European Commission: they estimate 14 million people live in the country other than their own home country, so basically it's the size of Belgium and they don't have access to financial services quite often. So like my own experience; I moved to Belgium, I could not open a bank account. I went to Schoenen (?), you know this roundabout to three different banks, I asked them if I can open a bank account; they say "no". You need to be a Belgian resident. But I cannot be a Belgian resident, I cannot sign the rental agreement if I don't have an account in Belgium. So I can't open an account in Belgium. So it's a catch-22 situation. So I think, well the European Commission wants to do good things in that. Also the point about collaboration: indeed, quite often fintechs, like start-ups, they come, well, they see a problem on the market and they want to innovate. So let's say it's just a case of trust for advice. I talked to Dr Si Huan who said well, I mean there was a big problem. So I trust a Romanian from the UK to Estonia, I never know if I trust in pounds, I get back in Estonian crowns. It was very complicated; I never know it was like, all these surprises.               

Which is why you wouldn't do it             


That's why I want to create all these start-ups, you know this trust [inaudible word] But increasingly we are seeing collaboration between banks, also banks innovate, not only start-ups innovate.           

Sure and that was a point that was made a lot in the first session, about incumbents working with fintechs. But I want to come, Claire, to this central question about and very striking, the most resounding vote of the day, when asked "are regulators doing enough to ensure a level playing field for all of those offering financial services in the digital economy", 5 thought the regime was fit for purpose, 5 % and 74 % said banks were subject to much more stringent regulation and thus suffering unfair competition. I was quite struck by something Antonio said, when he said fintechs are doing some of the stuff we don't want to do. But then of course they start there, but then they start moving in to do some of the stuff you do want to do, or that's the risk.


How do you answer the 74 % of the people in this room, and you mentioned the work you're doing on platforms and so on at the moment, but how are we going to address this issue, to make sure there is a genuinely, yes there are two sides to a level playing field, as Christophe made clear in the last session, but this area that the traditional banking sector does not continue to feel very much penalised by the weight of regulation compared with those innovative fintechs.       [02:02:12.11]

I think three points. Obviously, first of all in this room, I wouldn't have expected any other response, given the constituency. It's like asking a turkey to vote for Christmas. But anyway, point taken and understood. I think the second things is, with the innovators coming into the system, they also bring some downward pressure on the regulation in terms of getting the regulator to really think about what they've done on the balance. So we see this not just in the financial services but in other industries as well, in terms of the taxis and the way they're affected by Uber and so on. What's happened is that governments have responded by looking at what they do overall in terms of the regulation. So if you really think it's an opportunity, as you said in response to the first question, then you can use that aspect of the opportunity too. But on a very serious note, the third one I would make, is that we are looking at where there are specific problems that are identified in terms of what the regulatory response should be. So on the platforms we now have this wide-ranging consultation, we now have responses; we know that there are issues in relation to business-to-business relationships on the platforms. So we will look at those and if there is a market failure, if there is something specific, we will see what is to be done. I think, of course, and you would say this too, I'm sure: the first thing should be to do something through self-regulation or [inaudible word] regulation if you can do it that way. But I don't think the Commission will shy away from stepping in where there is really a danger for consumers or there is a real problem.  

And do you understand the sense in this sector that it is a worse problem for them because of the degree, the level of regulation since the economic crisis, we were talking earlier about the more than 40 pieces of legislation so yes, an issue that broadly you're looking at but very much an issue for this sector, no?              

Yes, absolutely. I said before I worked on banking through the financial crisis, all the new regulations that were being drawn up, understand the difficulties and it goes back to the point you made about investment as well, of course for the banking sectors to be able to seize, banking & insurance to seize the opportunities; there needs to be money there to invest as well.                

John, which way did you vote on that question? Were you in the 74 % which thought it was unfair or the 21 %? Because linking it to our last discussion, if you're proportional, if you address the issues we talked about last time, then it'll be OK but it's not as it stands.

I was more on the proportional side. I have a lot of sympathy with the banks. If you look at it negatively I do think they have a lot of regulation and I think a lack of trust has grown up in recent years that even if they do something innovative, the regulators will come in and suddenly take away any ability to make money from it. So why bother? That's quite a sad thing that wasn't there maybe 10 years ago. Nevertheless, I think if you have the privilege of being a financial institution with a banking licence and gaining that trust, you should be allowed to do certain things and you are allowed to do certain things. And the point on collaboration with the fintechs is a fantastic one because as long as there's a rim of, it's pretty niche stuff, much of this fintech stuff. I think we see the headlines that talk about hackathons and blockchains and we see Apple and Google and we put them all in the same box. And they're not, much of the fintech stuff is very, very niche. A lot of the potential band if the banks collaborate with that potential, then it's a fantastic set of laboratories to understand what the next big thing is without them having to do it all in-house. So I think banks should be proud of being banks, they should step forward and way, well this is what we do and we do have a special place in society and be allowed to have that special place in society without just being bashed all the time for the people who get bailed out and wreck the financial economy and still never give us anything we want, blah blah blah. But at the same time they must, and they want to work, 80 % see that there's positive disruption on the way.               

Antonio, were you in the group that thought that proportionality would help to address this issue and level that playing field or were you in the vast majority of the room who felt it was, there was more needed to be done to address this issue than that?    

Let me put an example. The crisis started in 2007, the financial crisis, and the digital revolution, the latest step of the digital revolution started also in 2007 when appears the first smartphone. And then the major part of the banks, we use all these 7, 8, 9 years discussing the regulation, the different governance bodies. Regulation - regulation - regulation- regulation. And we don't use any moment to discuss about digital transformation. And the problem is that it's really a competition between regulation and the business transformation because we are all focussed on regulation because that affects our lives, our capital, our business, our etc. But really the most important transformation, it's the transformation of the customer behaviour. And then our customers don't understand nothing about regulation, doesn't feel more comfortable with his bank because the regulation doesn't, regulation is not a value added for our customers. What is really value added for our customers is convenience. The convenience of our service. Then we need to be focussed on the digital transformation and thanks to the regulation that will stabilise our business in the medium to long term.         [02:06:30.19]

So it's that stability that you need in order to focus where you think you need to set the focus.


Sergey, a comment to this and this level playing field because it's not just in this sector, of course it's in many sectors but particularly acute, given the level of regulation in this area since the crisis.

Right, so it's a level playing field. I fully agree so once again regulate the same activity in the same way so it doesn't matter who operates. Also what I hear from fintech, from start-ups, in fact they like regulation, they say it's good. So for use we have regulation it's more, you can operate within regulation, it's very clear, the boundaries and you will also hear that basically in the European Union regulation is very specific to very specific activities. So for example you take a licence for a specific activity unlike in the US where you would take a kind of global licence, compliance costs are higher. Also thinking about the digital revolution in the banking sector: so once again banks, it's not only that fintechs innovate, the banks also they innovate, they have collaboration, venture capital with fintechs, open innovation, cultural transformation so it all takes place and, right.         

Thank you very much. We are almost out of time but I want to, as with the other panels, put you all on the spot a little bit and identify where do we go from here. Antonio, I started with you on the last question so I'd to start, you were last on the first question. One priority to ensure that the regulatory environment can keep pace with digitalisation, one thing you thinks needs to be done and so that in fact, to go back to what you just said, so that you as a sector can focus less constantly on the regulatory issues and more on what you need to do to make the most of this world. So it can be a priority for policy-makers to get the regulatory environment right, but also if you have one for your own sector, to seize that digital transformation - what would it be?    

I think that the digital transformation is something for the retailers who need to be seen in the Eurozone as a project, as a common project for all financial services. And in this sense I think there is a lot of responsibilities on the financial sector, like QAC (?), anti-money laundering, regulations, etc. that are even more important than others. And I think that under this point of view and to be very simple I think that one of the things that the regulator can solve, is that how we identify our customers at a general level in Europe and I think that platforms like MyBank help to do that because at the local level all the banks we identify our customers, but it's impossible to create a digital single market to sell services, cross--border to offer in some payments to any corner, part of Europe without an authenticity. And I think that this is something like the passport or like the identity cards, it's something that needs to be fixed, it's very clear for all the digital economy.   

Thank you very much indeed. Sergey: 

So thank you very much. I think customer identification is also very important. Also personally, I have different accounts at different banks. The only time I use different devices to access my bank accounts or I'm not sure why it's impossible to make the same system, it's always complicated and I think generally about regulatory framework, I think it's difficult so we need to strike a balance between 3 things like: innovation, stability cyber security and privacy. So it's always like we cannot maximise any one of them. So it's like one comes at the cost of another.              

Thank you very much. Claire:   

OK, I'm going to be very boring, I'm going to go back to basics. Because I think the most important thing is getting the system for payments right. Online payments, right? To get a system that's secure and that's user-friendly.  There's still a lot of people that don't want to bank online because they're not convinced by the security of the system. I think it's key for the banks because it's your core business. It's a litmus test because if you can get that right, you can get other things right. But it's also absolutely essential for what we want to promote in the digital single market, which is e-commerce, that is there's trading of goods and services online.        

Thank you very much. John, you have the last word.   

The payments piece, I'm glad that you've come back to basics because I think it's very important and we haven't really talked about it but I think there's big risks about the way Piers Ti 2 gets implemented will not be done well enough because the regulatory and technical standards that the EBA will come with will leave too much room for fragmentation and not enough interpretation. But that's a very specific topic. But I think a general message to the regulators would be now to leave the banking industry alone a bit, to develop some of these collaborative solutions and a message to the banking industry: that we need to get organised on this, that we can take action, that we can work together, payments is a network business, data is a network business, let's work together and really build something Europe can be proud of.      

And thank you very much           [02:13:28.20]

For beautifully completing the circle from where we started with Isidro this morning to the end of this panel. Ladies and gentlemen, will you join me in thanking our speakers very much indeed. Thank you so much. So lots of food for thought, lots of provocation.

Closing Speech by Alain Minc, Economic and Political Advisor, AM Conseil

It's now my pleasure to introduce Alain Minc, economic and political advisor at AM Conseil, a consultancy firm which he founded in 1991. He's been working in this area since the 70s, author of I think it's some 30 books Alain has written so we couldn't have anyone better to reflect and bring our proceedings to a close. Alain, welcome and over to you, sir.        


Thank you. I must confess I feel in an odd position. All of you are professionals, you know everything and I am only a modest observer. So that I will put my words under Woody Allen's philosophy which is "the answer is yes, but what is the question?"


Two, thoughts, two non-questions, yes answer I would like to highlight some points. With the frankness, I would even say the bluntness, a non-professional can have. First bullet point, and it was very clear in the discussions this morning but I would like to emphasise it with more bluntness: there is a split within the financial world. ON one side there is your world and you are an industry the profitability of which is capped. And it's capped by the increase of equity, by all regulations, so that you are becoming a kind of utility. It may be owned by the public, it may be mutual bonds but in matter of fact you are a utility. Now you look like a railway company.


On the other side you have the jungle. It's very polite to say fintech because you have technology and finance. I think I would prefer that everyone uses the world of banking because what does off-banking mean? That means a jungle. So on one hand we have a highly regulated world and you told it because you suffer it every day in your daily work. And on the other hand you have an absolute unregulated world. I mean you will have to face once, not only Basel III, Basel IV, Basel V, Basel VI. And on the other side, that's Basel 0. And no one is thinking about Basel I. Why? Everyone is conscious of that little fact. And the regulator is conscious and the ECB obviously is conscious but it's much more difficult to regulate the players of the off-banking than it is to regulate the banks. You have your headquarters, you are registered in a country, you have your numerous employees. It's easy to regulate banks. It's much more difficult to regulate animals: we don't know where they are, how they work, who owns them and what do they do? And so that is a kind of easiness for the system to regulate only one side and to leave the other one deregulated.


The reason in a market economy is very clear: more regulation on the banking side means more money within the deregulated financial world. And in 2 days off-banking is more important than the banking system. And in the end the difference will increase every day, every month. So I think really that is the first point.


The second bullet point which is linked to the regulation, is that I think that regulation is very cleverly tackling with the crisis of yesterday, but not all with the crisis of tomorrow. There will be new crises, I mean crises are a fact of life and world without crises would be very boring. But it's obvious that the crisis will occur probably in the unregulated financial world and will obviously come back on the regulated world. So I am fascinated by the way that all the institutions are thinking that the next crisis would look like the previous one and all the system, which is very well done, is built on principles which will not apply to the next crisis. We must have it in mind. No one knows when it will occur but it will occur and it will occur and it will come from the deregulated financial world.


The third point which is also linked to this new environment, is that there is a very high risk of bureaucracy with so much regulation. And we are in a vicious circle. On the one hand the ECB and all other central banks are developing more and more unconventional tools to relaunch credit And we must confess that we are entering a world with a very high degree of uncertainty.            

These are non-territories. Everything we [inaudible word] taught to use when we learnt economy doesn't apply to what we are living now. With certain conventional tools no one will [inaudible word] But will it be efficient? The problem is that it is contradictory with the risk of bureaucracy within the organisations which are supposed to relaunch the credit, which means the banks. You know, every one of you knows the pressure of this regulatory environment. For instance, all of us we have to answer when we belong to boards, to management of banks, to someone which is requested by the ECB which is the risk appetite framework. It's a very bad name, the name should be the risk adverse framework. It's clear that the system now is destroying the sense of which is the anchor of your business. And from that point of view the ECB is doing everything it can do to relaunch the credit. But on the other side, the supervisor, which is the arm of the ECB, which is a tool of the ECB, is creating a world which would prevent every banker in a branch, every bankers in a headquarters, to take as much risk he would have taken differently. So from that point of view I think the situation is quite worrisome. And the fact to think that the unregulated world will take risk, yes, they take risk. But we know perfectly, at least in Europe, that not all companies are able to find themselves in the unregulated world. When you are a large company, OK. But if you are a small company in a local town, it will be very difficult. You can't use all these fintechs and off-banking to finance, you need your basic bank.


Fourth point which is linked to your industry, which is retail. The question which you are confronted with is very clear: is the banking industry threatened to become the steel industry of the modern times of tomorrow? What does this mean? An industry with high fixed costs, on the one hand, and an industry with grave news which are pressured by the low interest rates, it was told, but also by the new environment. And from that point of view, it's a question - I wrote a book about digitalisation 35 years ago and at that time with my colleague we told the bank will be the steel industry of 2000. We were wrong. We were wrong not on the diagnostics, but wrong on the timetable. But the question now is open.


Fifth point of the picture when you look at it: we know that we are facing presently a fantastic change of the balance between US banks and European banks. It's clear that the balance of powers has dramatically changed. The US banks have now an overwhelming strength vis-à-vis the European banks. Why? First, because they were ready when the crisis occurred to kill the former shareholders through huge share issues. They didn't care about the shareholders. The European banks were much more respectuous [sic] of their shareholders at that time and did their best not to dilute them in huge proportions. And the result is clearly the structure of the balance sheet. And it's interesting to see that the philosophy of capitalism in the most capitalist country in the world, which is the United States, is ready to kill shareholders in order to facilitate a new surge of the economy. And in the less market-oriented world, which is the European world, we are not ready to do that because we consider we have a fiduciary duty to protect the shareholders. It's very interesting to see such a killer, the most capitalist system is much more a killer than more regulated capitalist systems. That is the first point which explains the huge difference between both systems.             [02:19:42.19]

But there is another one which was told previously during the meeting. It has to be said that the weakness of Europe of in front of the Americans in all international regulatory institutions. You remember that at the time of the Iraqi wars there was a debate worldwide about hard power and soft power. And it was told that the Americans are mustering the hard power which is Mars, able to launch wars, and the Europeans were mustering the soft power which is inference. As a matter of fact, if you look to the present situation today, it's clear that, I think that [inaudible word] the hard power of the US is weakening from day to day but the soft power of the US is strengthening to day to day and there are two pillars to this huge and growing soft power. On one side technology, the [inaudible word] and so on, and on the other side the overwhelming domination of the US financial system.


At that stage of my presentation I have not told once the word innovation, the word digitalisation or the word internet. And it was not deliberate: that means that the landscape in which you live has for the time being is not transformed in such a proportion by the technological revolution that it may change the first subjects I presented to you. Nevertheless, if we come to digitalisation, the question is very clear: will it worsen or improve the landscape? And how analyse it? How can this digitalisation worsen the landscape, how can it improve it? Worsening the landscape: it is clear that it increases pressure on fixed costs and the need of restructuring and a reduction in the number, unfortunately, of employees. Worst thing your daily landscape by the arrival of new competitors, mainly GAFA and TELCO, and one key question again about regulation is I hope that the system will not consider the GAFA and the TELCO as belonging to the off-banking world. I hope at least these ones which are not in Bermuda, which have headquarters, which are registered, which exist on the market, will be regulated at least as the banks are regulated. Because if they are not, you will be dramatically damaged.


So it's clear that there are new revolution some factors which will make your life more difficult, clearly. On the other hand, there is the miracle of technology. But what is fascinating is that on the one hand you see a new, you do it every day, your daily relations with your customers begin to be changed by digitalisation. That's clear. I mean on a very microeconomic level, it's an improvement, it's a revolution, it's consumer-friendly, it has all the virtues. But what is fascinating, if you look at it from a little farther, what will be the impact on productivity? As you know we are in a very strange situation. All of us, it's not only for the banking system, the productivity will, all of us think, the technical, the digital revolution will improve productivity. And just at the same amount we are confronted with very interesting economic theories, telling that productivity is slowing. Which sounds very strange, I know. It seems that productivity is presently slowing as we should think that as railways one hundred years ago or electricity 70 years ago, we are facing a revolution which will improve the global productivity. Strange, but it is so. And it is clear that this paradox applies to the global economy but it applies to the big players. And you are big players. Will this revolution impact dramatically and improve productivity? We'll see.           [02:25:12.08]

Also a point which is at least to [inaudible word] an innovation as a fantastic tool of improvement, we are obliged to be theoretical, which is to say: Schumpeterian destruction is a plus. Innovation is always a plus. It will add something. And even the very interesting words which we're told about blockchain were from, that point of view, meaningful. It's fascinating. It's obvious that it's fascinating. So because we are fascinating [sic], we think it is an improvement. But only life will tell us. Once I told that it will occur so we will have to cope with it, so we have to live with it.


But I think that at the same time that we are in a very strange situation. WE have to learn very quickly, to digitalise. WE have to use it more and more. But we don't know the reasons. And that is clearly very classical for any technical revolution. A technical revolution is as it impacts, we have decided it may be positive, it may be negative, it may be neutral. So that I think we must not rely on the mere idea digitalisation will solve all our problems and so life will be kind of paradise. No: I mean it will not solve all our problems. It's a fact of life and as Newton's Law we have to cope with it and you have to practise it as best possible.


But, and I will end my words by that, I think that much more than technicalities, much more than digitalisation, why do I worry for your business? Is that I think I don't like when the western world is entering uncontrolled bureaucratic wave and I am afraid that the banking industry is threatened by an uncontrolled regulatory wave.  I put all my apologies to the present representatives of the ECB, they are not responsible, it is a fact of life.


Alain, thank you so much. And that really brings us back to why the topic for today: better regulation, is so important. That for your thought-provoking insights and analysis. Chris: over to you to close.

​Wrap-up by Chris De £Noose, ESBG Managing Director

Thank you. Ladies and gentlemen, I think you will agree with me we had a fruitful half a day, I would say. The morning started with Mr Fainé calling on all of us to move forward together, to innovate, to get closer to customers. The challenges are present and we have to meet them. Policy-makers have to understand our model and to enable us to be the 21st century banks we aspire to be: connected, closer to the customer, 24/7.


Penal 1, we are we facing a Kodak movement or are we going in the direction of Uber? Uberisation or Kodakisation? Jan helped us see the Uber-type part. Bitcoin, blockchain, which is changing the rules, and energy consumption aside, banks are seeing its potential. There is a great promise in the digital wave for customers and how we engage them. The digital wave is a fact of life as Mr Dematos said. Is there tension with the physical banking network? Perhaps. But change is here, policy should enable that.


Panel 2, there is a big appetite for a tier-based approach according to our audience poll. The cost of regulation is hampering innovation by the same three fifths margin. Getting the balance right is a challenge. Mrs Berès says policy should keep in mind the banking landscape. Proportionality can address this. And Mr Enria said, the principle in reporting rules, for example, and in a number of other areas. It's time for a stop and check. Fintech should be regulated he said. It seems Europe needs to be taken into equal account as the US within Basel and other bodies. The future of the EU banking regulation is in the balance.


Mr Heller highlighted the significance of bringing in extra people to deal with stress tests in 2013 and that the stress testing process needs to be automated. Dr Schackmann-Fallis pleaded for regulation to take into account small banks and proportionality at the beginning of the regulatory process, not just towards the end. Madame Berès warned not to use the principle of proportionality as an excuse, to be clear: its intent is to ensure all players compete on a level playing field.


Now panel 3: regulation has to keep pace with the digital age. The audience poll shows there is a clear need. Silicon Valley and the tech hubs in Europe are moving ahead. Moving ahead on digital markets strategy and the retail financial services initiative is crucial. Claire Bury made it clear more than ever, cooperation needs to blossom between industry and regulators, and in a progressive way. Antonio Massenell stated the need to change. Change in order to survive. Fintechs are indeed a stimulus for banks. They are also appear to be forcing governments to think about regulation and rules, keeping the citizen in mind. John Broxis has sympathy for us - thanks John! He made an important point, that collaboration with fintechs is a positive route to take rather than putting up a wall or doing it all in-house.


And finally, M. Alain Minc framed us as a utility. Of bank entities, a different creator indeed. Utility or not, we are indeed proud of being banks and have a special place in society. Challenges we face are numerous, but there are plenty of clever paths to help us drive in the 21st century.


Ladies and gentlemen, on behalf of my chairman, Mr Fainé, and myself, thank you for joining us and a special thank you goes to all the participants here. I think it was a fruitful day and not least to Jackie Davis, who made everything very active and lively. Thank you for coming to be here.


And I think the programme is not finished yet, I think the most important thing is the networking lunch outside. Thank you.         [02:33:33.01]