Data Act - An open data economy should be multilateral and cross-sectoral

ESBG submitted its position to the European Commission on the proposed Data Act on 12 May. ESBG welcomed the Commission’s data strategy and its commitment to create a single market for data that will constitute a potential source of growth and innovation.

We believe that a European approach to data is essential to ensure competitiveness, avoid fragmentation of national regulations, and benefit from a scale effect. Moreover, ESBG members stressed that the horizontal regulatory approach is crucial to establish the key rules and principles for all sectors as, in our view, an open data economy should be multilateral and cross-sectoral.

The European Commission published its proposal for the Data Act in February and opened this call for feedback in March. The proposal clarifies who can use, access, and share data generated in the EU across all economic sectors, and on what terms. The Data Act aims to provide a harmonised framework for data sharing, conditions for access by public bodies, international data transfers, cloud switching, and interoperability.

The Data Act is based on the results of an open public consultation that the European Commission carried out in 2021, to which ESBG responded in September. It is the second main legislative initiative directly related to data, following the recent adoption of the Data Governance Act, which aimed to increase trust and facilitate data sharing across the EU and between sectors.

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ESBG response to ESMA’s consultation on guidelines of MiFID II suitability requirements

On 27 April 2022, ESBG submitted its response to the European Securities and Markets Authority’s (ESMA) consultation on guidelines on certain aspects of the MiFID II suitability requirements. Published in January 2022, the paper builds on the text of the 2018 ESMA guidelines, which are now being reviewed following the adoption by the European Commission of the changes to the MiFID II Delegated Regulation to integrate sustainability factors, risk and preferences into certain organisational requirements and operating conditions for investment firms.​

In our response, we stressed that ESMA should give investment firms more flexibility in implementing the new rules. In particular, we consider that the process for collecting client information is too detailed and impractical for both the client and the investment firm, hence we proposed that it should be optional. We also noted that the two-step approach of the suitability assessment is overly restrictive and time-consuming. For these reasons, we urged that the firm be permitted to collect all information from the customer at once.

Moreover, we understand that Level 2 Regulation allows an investment firm to recommend a product that doesn’t meet the client’s sustainability preferences, if the issue is explicitly stated and explained to the client as well as documented in the suitability report. This practice is contrary to the guidelines which require the client to first adapt his or her sustainability preferences before any further discussion. Additionally, we recommended that collecting extensive client’s information should not always be necessary when, for example, an investment firm does not have any financial instruments included in its product range that would meet the client’s sustainability preferences.

Lastly, we proposed an alternative treatment of investment advice with a portfolio approach in terms of collecting client information on sustainability preferences. We believe it would be more beneficial for the client if firms were allowed to collect such information in each advice session rather than for the entire portfolio as in the case of providing portfolio management.​

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Scale2Save brings Ugandan financial stakeholders to commit for financial inclusion

Scale2Save Campaign

Micro savings, maximum impact.

KAMPALA, 28 April 2022 – Key stakeholders of the Ugandan financial ecosystem came together during a Scale2Save knowledge sharing event, which concluded with a joint call to action with concrete steps to boost financial inclusion in the country.

Read the call to action

The signatories of this call to action, and initiative of the World Savings and Retail Banking Institute (WSBI) and its programme for financial inclusion, Scale2Save, are: the Uganda Bankers Association (UBA), Financial Sector Deepening Uganda (FSDU), The Association of Microfinance Institutions of Uganda (AMFIU), The Financial Technologies Service Providers Association (FITSPA), and the Mastercard Foundation.

“We are ready to work with all stakeholders to demonstrate the commitment of the industry, particularly in times of shocks. We are also ready to continue making contributions to the empowerment of low-income customers to seize economic opportunities, build resilience and, ultimately, have a better life”, state the signatories of the document.

This commitment was announced at the end of a 2-day Scale2Save event in Kampala entitled ‘Building resilience and economic empowerment for women and youth’ which brought together some 100 participants. Both the event and the call to action focused on the key drivers of financial inclusion such as customer-centricity, the potential of digital finance and sustainable business models.

Michael Atingi-Ego, Bank of Uganda’s Deputy Governor, described the current state of high financial exclusion of women and youth in the country during his keynote speech at the event.

“When you consider these observations about our lived reality, you start to see the imbalance that Scale2Save is attempting to address here today. This extent of financial exclusion of women and the youth tantamount to trying to balance a three-legged stool on one leg. This is unsustainable in a country that is working towards socio-economic transformation”, he said.

“I am pleased to participate in this event because the Bank of Uganda shares the objective of democratising access to and empowering the users of financial services, not least by championing the National Financial Inclusion Strategy, and through our strategic plan and operations. But like the multilegged stool, it will take the contribution of all stakeholders and partners to bring about universal financial inclusion,” added Mr Atingi-Ego.

Scale2Save is a six-year programme working six African countries including Uganda, where it partners with Centenary Bank, FINCA Uganda and BRAC Uganda Bank. Weselina Angelow is Scale2Save Programme Director. During the event, she presented some of the key lessons learned during the last years implementing financial inclusion initiatives in Uganda.

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Developing a proportionate, fair and efficient IRRBB framework in the EU

On 4 April 2022, ESBG responded to the EBA consultation specifying technical aspects of the revised framework capturing interest rate risks for banking book (IRRBB) positions.

Our response stresses that the current framework is too complex and challenging to implement for smaller institutions with non-complex operations and limited market risk exposure. Although we need a sufficiently prudent management of interest rate risk amongst all EU/EEA banks, the framework should also consider the peculiarities of national banking models and the interest risk inherent in national markets.

As regards the definition of large decline for the purpose of the net interest income (NII) supervisory outlier test, the proposed “Option B” referring to a cost related metric seems more aligned with established internal interest rate risk management methodologies. Yet, the removal of the administrative expenses term, which generates volatility and complexity, is pivotal to favouring this option.

Considering the limited ability of the standardised approach to capture adequately the exposure of each entity to IRRBB, any obligation to use it should be conditional on the competent authority having demonstrated that it would be more relevant than the internal model approach (IMA) it would replace.

In the area of credit spread risk arising from non-trading book (CSRBB), the scope of the framework is too extensive as it includes all instruments. On the contrary, credit spreads, which are based on a market perception, should not apply to illiquid and non-market instruments whose value does not change according to these market spreads. The scope should thus be restricted to instruments that have a clear market price transparency andare easily tradable on a large and deep enough market, because only these assets are subject to the market perception. Moreover, a clear definition of the terms “market credit spread” and “market price of credit risk” is needed.

To avoid different interpretations and ensure a level playing field, it should be stated explicitly in the Guidelines, that non-marketable instruments, such as loans to customers, should be generally exempted from CRSBB as they are covered by the bank’s credit risk management framework.

Finally, the new IRRBB standardised methods for the economic value of equity (EVE) and NII seem to be very calculation intensive but, at the same time, less granular than many banks’ internal models. We therefore stress that both banks and supervisors may lose interest rate risk management insights if banks are required to apply them by their national authorities. ​

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Scale2Save champions inclusive financial services for Nigerians

Scale2Save Campaign

Micro savings, maximum impact.

LAGOS, 30 March 2022 – The World Savings and Retail Banking Institute (WSBI)’s programme for financial inclusion, Scale2Save, has reiterated the importance of inclusive financial services for Nigerian women, youths and farmers as a way to fuel the country’s economic recovery and growth. This was stated at the Scale2Save financial inclusion knowledge sharing event attended by key financial stakeholders across the country.

Watch the TV coverage

Scale2Save is a six-year programme of the World Savings and Retail Banking Institute in partnership with the Mastercard Foundation aimed at establishing the viability of low-balanced savings accounts and to unravel the extent to which savings help vulnerable people in the society to boost their financial wellbeing.

In her keynote address, the Scale2Save Programme Director, Weselina Angelow, highlighted the importance of stakeholders’ knowledge sharing events such as this towards Nigeria’s quest for inclusive growth and economic development. According to her, “As we intensify efforts to improve financial inclusion, it is important that all stakeholders are a part of knowledge and insight-based discourse as this to improve on their processes and make informed financial inclusion decisions.”

Reiterating the commitment of Scale2Save and how the programme is impacting its members as well as other stakeholders, Angelow stated that the programme’s mission is to support financial inclusion initiatives to help millions of Nigerian youths, women and farmers.

“We focus on adding value to all stakeholders along the service value chain by empowering our financial service provider partners to become savings-driven, customer-centric institutions,” she said.

The Mastercard Foundation’s Access to Finance Lead, Mercy Mutua, stressed that financial inclusion is an enabler to help African youth find a way out of poverty.

We acknowledge that a lot has been accomplished but there is a long way to go to address barriers, especially for young rural women. It is Important to tailor solutions relevant to context and customer-centric,” she said in a virtual keynote speech.

Commenting on the need to deepen financial inclusion in Nigeria, the Head of Financial Inclusion Secretariat, Central Bank of Nigeria, Dr. Paul Ihuoma Oluikpe, stated that financial service providers must target specific customer needs with financial inclusion products.

“There are several products in our financial services space that are too generic. These products are not targeting any value proposition, and are not sufficiently differentiated at the customer level. While there are generic products that appeal to the larger audience, there is the need to drill down at the customer level to target different nuances that exist in the society,” Dr. Oluikpe said.

The WSBI’s 2019 financial service provider survey reveals that attitudes to financial inclusion and low-value savings among financial service providers in Nigeria and other key markets in Africa are being significantly transformed as they have intensified their focus on customers, targeting different groups with tailored accounts and savings products.

Despite the significant progress recorded so far, stakeholders believe that there is still a long way to go to attain a satisfactory level of financial inclusion. Confirming this, the Group Head of Financial Inclusion, FCMB, Adetunji Lamidi, said, “Financial illiteracy is a major barrier to financial inclusion. What we see is a situation where a lot of Nigerians still have this overdependence on the informal financial sector. It takes a long trust-building process to switch them from the informal sector they are familiar with into the formal sector. This is why most of the financial service providers have adopted agency banking where people within the neighbourhood are used as bank representatives. This helps to build confidence, trust and convenience into our financial inclusion strategy.”

Through the intervention of Scale2Save, Financial Service Provider (FPIs) partners continue to innovate products and services that are driving up inclusion among the key target groups. Scale2Save continues to drive the message of financial inclusion while engaging with key stakeholders in target countries that can help actualise the inclusion objective.

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Scale2Save is empowering Nigerian women through financial inclusion

Scale2Save Campaign

Micro savings, maximum impact.

On the occasion of International Women's Day

By Irene Wagaki

 

In 2019, LAPO Microfinance Bank of Nigeria undertook an audacious goal to onboard over 168,000 savers in three years through a child savings account. To help them meet this goal, management decided to use a Human-Centered Design (HCD) process to evaluate and revamp their offering. The My Pikin & I account, which means “My Child and I,” seeks to motivate consistent savings through incentives including micro-insurance for mothers and scholarships for their children.

Read it on FinDev Gateway

With the support of WSBI’s Scale2Save programme for financial inclusion and IDEO.org, the LAPO team conducted a two-phased HCD process. The first phase involved research, synthesis and ideation, and the second phase was prototyping, iteration and refining. Immersive research techniques such as observation, interviews and focus groups were used, followed by synthesis of findings to draw persona maps and insights that fed into the ideation activities.

Here’s what we learned through this process:

1

Make sure you have a specific strategic outcome in mind that human-centered design can address. In the case of the My Pikin & I product, the goals became clear upon holding initial stakeholder sessions with LAPO Microfinance Bank’s senior management teams. They sought to attract new clients and motivate them to save consistently, thus helping them attain the MFI’s goal for deposit mobilization. HCD was needed to realize that goal as it centers on clients’ personal needs and aspirations while meeting the institution’s strategic goals.

2

Keep it simple. Co-creating with customers requires simplified prototypes. The HCD process helped LAPO Microfinance Bank make communication materials more accessible to its target audience. During the prototyping exercises, customers suggested rewording the messaging to show the benefits one incentive at a time rather than providing loads of information in one poster.

3

Find out what motivates your clients and capitalize on it. Immersive customer interviews helped the LAPO Microfinance Bank team realize that the ability to save was not enough of a motivation for customers. They needed to see tangible benefits from the start in order to save consistently. So the team added a microinsurance incentive, offering premium-free coverage against accident and critical illness, that is tied to consistent savings behaviour. According to the product roadmap, LAPO Microfinance Bank plans to extend the cover to include health insurance. The design team was also intrigued to discover that customers preferred to keep their physical cashbooks as evidence of their savings rather than rely on the fully digitized system the team had designed. This finding provided an opportunity for LAPO Microfinance Bank to build trust by offering a redesigned physical cashbook, thus reinforcing the physical attachment to the cashbook as well as providing a savings tracking tool. Complementary evidence of transactions is also provided via SMS confirmation.

4

Customer-facing agents and personnel require the right tools, not just training. LAPO’s “aha” moment came when they realized that staff didn’t actually need more training on how to explain products’ features to new customers. What they really needed was a handy tool for onboarding customers. The design team created a visual pitch of the My Pikin & I product that spoke to the target customers’ aspirations, needs and concerns. The videos serve as explainers and are displayed on a tablet as part of the customer onboarding process.

5

Take advantage of the transformative potential of the HCD process. At its core, HCD is a highly collaborative process. LAPO’s team brought together people from many different departments, including savings, research, agency banking and customer service. They all participated in prototyping exercises with customers, using the feedback they received to adjust product design. This experience brought about organizational transformation for LAPO Microfinance Bank, as it helped to impart new skills, break hierarchy barriers and develop more innovative mindsets.

Next steps for LAPO: Experimentation Phase

After going through the HCD process, LAPO Microfinance Bank implemented the My Pikin & I product with a heavy on-ground presence of agents and roving staff. These agents continue to complement the bank’s physical and digital banking channels, especially in rural locations.

Their efforts have been successful. Since the products’ re-launch in 2019, over 125,000 new customers have joined LAPO Microfinance Bank and opened My Pikin & I accounts. However, the microinsurance incentive has not experienced a proportionate increase in uptake, with only 7,400 insurance takers. For LAPO Microfinance Bank to optimize the My Pikin & I product fully with its go-to-market strategies, the next step would be an experimentation phase to study which insurance benefits are most effective in sustaining a positive savings behavior.

Ultimately, the human-centered design process should be incorporated as an ongoing way of doing business, as it can help the MFI keep its clients’ needs and desires at the forefront, while also working towards the institutions’ goals.

 

About the author

Irene Wagaki works as a consultant for WSBI’s Scale2Save programme for financial inclusion in Africa. She is a behavioral researcher and designer at Lime Group Africa with experience in leading Human-Centered Design for digital financial services, savings, microinsurance, financial literacy and agri-business interventions. She holds an MBA and certifications in Behavioral Science, Human Centered Design and Digital Identity.

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European Commission review of the Mortgage Credit Directive

On February 28, ESBG sent its response to the European Commission questionnaire on what to include in the upcoming Review of the Mortgage Credit Directive (MCD). The consultation, published in November, covered 55 questions. The review of the legislative text is expected to be launched later this year.

In our response, we asked for a limited review on the necessary topics only. Our overall position is that an in-depth review of the Mortgage Credit Directive would be premature, at this time. Since the last review took place in 2016 and it concerns long-term finance, more time is needed to evaluate the impact of the changes included then.

As the mortgage market is not operating much cross-border, we believe that EU level intervention is not necessary. Consumers rely heavily on local expertise of mortgage advisers and working in their own languages and within national legal frameworks.

However, one area we are in favour of a review is the compatibility with other EU texts. For example, the General Data Protection Regulation, the EU Accessibility Act, and the Rome I Regulation will all impact the MCD so alignment is necessary.

As always, ESBG is pleased to see work being carried out on consumer protection. ESBG members have a long history of financial education and welcome the provision in the MCD text to increase financial education for consumers, which is more defined at national level.

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Customer protection

Proposed Solutions and Actions

Simplification of information

Consumer credit is normally partially executed through the granting of a handful of small operations to consumers. Those operations are of limited complexity and – in comparison to mortgage credit – of small amounts, but are, in turn, regulated by considerably complex rules.

As an example of that, the CCD requires creditors to give excessively detailed information to the consumer prior to entering a consumer credit agreement. Nonetheless, consumers ignore information which is too complex or difficult to remember and there is evidence that simpler information with fewer figures is much more effective at landing critical messages. That information may refer to information that only reflects the specifics of the product and meets with client’s expectations for short and clear information – for example – the repayment periods, the amount of the repayment instalments and the applicable interest rate.

Reduction of information

Regarding the pre-contractual information, it is important to focus on diminishing the number of precontractual documents, which banks are obliged to serve to consumers in any case. This approach has not proved itself to be useful for consumers and for that reason the requirements for serving precontractual information and Standard European Consumer Credit Information aren’t helping in achieving the objectives of the Directive. Bearing digitalisation in mind, the required information can barely be presented in a clear and comprehensive way on mobile devices.

A critical look should also be taken at the amount of mandatory information to be included in the credit agreements themselves. From the consumer’s point of view, the agreement should contain only what is necessary, i.e. in addition to the total amount of credit, above all the repayment plan, the default interest rate and information about the typical consequences for the borrower during the performance of the contract (consequences of overdue payments, rights of withdrawal, early repayment conditions).

The reduction of information may be also observed through the role of the right of withdrawal. The right of withdrawal is an instrument for the consumer’s protection and when it is granted to the consumer it should diminish some of the requirements for the service providers, especially in the field of the pre-contractual information that needs to be provided to consumers. If the amount of information is not diminished, there is not a substantial meaning of the right of withdrawal.

Regulate activities rather than institutions

In ESBG’s opinion, gold plating practices in the implementation of the CCD by Member States have limited its effectiveness. The use of innovative technologies has prompted the arrival of new operators to the consumer credit market. Unregulated entities can take advantage of the consumer trust that regulated entities have gained through the years, and even put that trust at risk if they fail to deliver fair and transparent results, increasing regulated entities’ reputational risk. Therefore, a strict implementation of the CCD by all Member States would give consumers better visibility on their level of protection in Europe. In this sense, the CCD should regulate that consumer credit activity should be a reserved activity and should require the application of policies on responsible lending, transparency and customer protection. Any revision to the CCD should be based on the principle “same activity, same rules”.

Creditworthiness assessment requirements should be flexible and preserved for each Member State and each credit institution. There is no need for harmonisation.

In our view an effective creditworthiness assessment can’t be standardised, because of the following nonexhaustive reasons:

  • it should be based on the knowledge of the borrower and on the ability to take into account the specificities of his situation, not on a mechanically applied criterion. This knowledge – inherent to the banker’s job – can’t be standardised.
  • standardising the assessment of risk profile would block the market without taking into consideration the peculiarities of each Member State.
  • it also may lead to a legal risk of not being able to deny credit if the European criteria are met.
  • common indicators wouldn’t allow to take into consideration the economic and cultural background: the same indicators will not necessarily mean the same in different countries (e.g.: savings habits, national rates of divorce, cost of education for children).

Identified Concerns

The CCD evaluation has so far looked at the relationship between the needs and problems in society and the objectives of the Directive.

However, more importantly for us is the impact that digitalisation has had on consumer credit. The emergence of a variety of new technologies has commanded the development of the digital transformation in the commercial and corporate aspects of banking. It is easy to observe a significant upward trend in the budget share dedicated to R&D.

However, the CCD did not anticipate that technological disruption, and new digital means have brought a diverse set of innovative distribution channels, and along with them, new communication means, new ways to access credit and the uniformity of credit agreements.

The use of smartphones, tablets, computers, headsets, and other devices, for not only searching products, but also for entering into credit agreements, is a reflection of the reality that has exceeded the expectations considered by the legislators when agreeing the CCD.

In this regard, special attention needs to be paid to the information to be provided to consumers before entering into the credit agreement. In some Member States, particular attention must be paid to the actual conclusion of the credit agreement when using these devices. Art. 10 (1) CCD, in which the text form of credit agreements is standardised as sufficient, should be harmonised to a maximum in the future, in order to enable a digital conclusion. At present, many Member States have adopted stricter rules (e.g. written form), representing a real barrier for the single market. In our view, in order to adjust the already adopted measures to the new digital technologies it is necessary to assess how much detailed information is required and how it can best be provided to consumers.

We have noticed that new market players such as crowdfunding platforms or SMS loan-providers have not yet played such a major role in the area of consumer loans. Nevertheless, we see a tendency for this role to increase in the future and for considerable changes to be expected in consumer loans as well.

Why Policymakers Should Act

We fully support the principles of the CCD, but we believe that it is reasonable to measure the objectives of the Directive having in mind that:
consumers want to receive clear and manageable information in a short time.

  • it is important not to overburden the consumers with information.
  • its requirements should be suitable for new technology and distribution channels.
  • a clear balance should be created between the objectives of the Directive and the rights of the creditors.​

Background

The EU Consumer Credit Directive (CCD) is designed to strengthen consumer rights and help potential customers make an informed choice when signing up to a credit agreement. Lenders provide standardised information on the product, allowing clear comparison by the consumer with other products available to them. In addition, lenders provide detailed information on the annual percentage rate of change; including the total cost of the credit.

The EU CCD was finalised in 2008. In 2011, an annex was added to clarify the rules on calculating the Annual Percentage Rate of Charge (APR). Finally, in 2014 a report was published in the Implementation of the directive. In 2019, the European Commission launched a consultation on the evaluation of the CCD, following on from an evaluation and fitness check roadmap. The review – still ongoing – aims to assess the effectiveness, efficiency, coherence, relevance and EU added value of the Consumer Credit Directive.​

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Strengthening the quality of corporate reporting and its enforcement in the EU

The EU corporate reporting framework has been developed with the purpose of ensuring that companies publish the right quantity and quality of relevant information with the ultimate purpose of allowing investors and other interested stakeholders to assess companies’ performance and governance and to take decisions based on that.

The consultation aims to evaluate the impact of the EU framework on the three pillars of high quality and reliable corporate reporting: corporate governance, statutory audit and supervision. This position paper is based on ESBG’s response to the consultation.
The European Commission adopted its proposal for a EUGBS in July 2021 and later launched a public consultation. In this context, ESBG has recently finalised a position paper that indicated some of the main concerns with the adopted proposal.

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European Commission Banking Package proposal

On February 22, ESBG responded to the European Commission “have your say" consultation on the Banking Package proposal, which transposes the final elements of the Basel III reforms in the EU regulatory framework and pursues other prudential and supervisory objectives.

ESBG supports the application of the output floor at the highest level of consolidation. The envisaged single-stack approach however requires that supervisory powers are more clearly framed and that the arrangements mitigating its impact are of a longer-term nature or permanent. The transitional arrangements for residential real estate, unrated corporates and derivatives should be made permanent or at least phased out based on the actual observation of structural changes in the EU banking market. Moreover, these flexibilizations should be extended also to institutions using the standardised approach to maintain a level playing field.

We recognise the proposal to disregard historical operational losses for all institutions within the calculation of capital requirements for operational risk, meaning that the internal loss multiplier (ILM) is effectively being set equal to one. This is a discretion provided in the Basel framework.

As regard to equity exposures, we support the implementation of a new category with a lower 100% risk weight (RW) for long term strategic equity investments.

Regarding specialised lending, we support the proposal to increase the risk sensitivity for unrated object finance exposures.

With respect to real estate exposures, the proposed requirements for non-income producing real estate should not go beyond the Basel standards. We then support the increased risk sensitivity for acquisition, development and construction (ADC) lending.

The threshold to use the simplified credit valuation adjustment (CVA) method should be aligned with the provision in the Basel framework.

We warn against an excessively restrictive application of the credit conversion factor (CCF) to trade finance instruments and to other exposures.

The proposed centralization of the disclosures is appreciated. Small and non-complex institutions should be exempted from reporting and disclosing requirements in the area of Environmental, Social and Governance (ESG). Further proportionality elements could then be envisaged.

Furthermore, the decision to retain important EU features such as the SME and the Infrastructure supporting factors and the CVA exemptions is appreciated.

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