Financial Institutions and Regulation – Some Insights
We hosted a Financial Institutions and Regulation Breakfast seminar at our Helsinki office on 13 June 2018. Seminar attendees consisted of representatives of financial institutions, technology providers, FinTech companies and other businesses interested in the latest evolution of financial markets regulation, emerging business models and technologies.
Although financial markets regulation requires market players to make further investments in compliance and other measures in order to ensure compliance with the requirements set out in new financial markets regulation, it also opens up new opportunities in the form of evolving business models for both incumbents and FinTech companies. Often the recipe for success is collaboration between these two.
Here are some key takeaways from the speakers:
- Cleary Gottlieb’s banking and financial institutions regulatory expert, Partner Bob Penn, opened the seminar by providing a practical overview of the effects of Brexit – the largest demerger in history – on financial institutions. Loss of the rights to passports, mutual recognition, and access between the UK and the EU27 will affect a broad range of financial institutions, forcing the re-evaluation of location strategies, business models, and contractual continuity. The transition deal depends on a broader agreement on the UK’s withdrawal from the EU, which is to be finalised during 2018 but which remains uncertain for the time being. It remains open whether the industry should be planning for a March 2019 or a December 2020 Brexit.
- Banking service pioneer and the father of e-banking, Bo Harald, gave an overview of the evolution of e-banking and the success factors on which the ecosystem’s roots have been built. Bo shared insights into the Real-Time Economy and MyData programs, which are the future enablers of the large-scale capitalisation on the benefits of digitalisation. The mission is to create and interconnect ecosystems for real-time transactions in order to improve services and productivity while simultaneously reducing risks. MyData and the GDPR together strengthen individual rights and increase trust towards data handling, resulting in Real-Time Economy capabilities to fetch the required data from the golden source for the relevant context. Further efforts are currently being made towards standardisation, and concrete proofs of concept are being rolled out in cooperation with market participants, technology providers and the public sector, involving e.g. the development of digital companies and identities based on distributed ledger technology (Corda, Sovrin, Hyperledger Indy).
- Founder and CEO of Trustology, Alex Batlin, who is the former Global Head of the Emerging Business & Technology team and the Global Blockchain Lead at BNY Mellon and Senior Innovation Manager at UBS, noted that while blockchain is considered unhackable and thus secure, the use of blockchain technology creates new challenges e.g. for safekeeping private keys authorising the transfer of title in the assets held in blockchain. This has inspired a range of solutions, such as paper, software, and hardware wallets, cold storage, and crypto custodian service providers like Trustology. Alex also shared his insights into crypto assets and utilising blockchain and distributed ledger technologies in general.
- Our recent hire, Counsel Jorma Yli-Jaakkola, former Director of Euroclear Group’s Legal Division, guided us through the strategic initiatives of the EU on promoting FinTech, the European Data Economy, and the digital single market. The EU strives towards enabling innovative business models to scale up at the EU level. Trust in financial service providers remains, in many respects, a local phenomenon and lacks digital infrastructure and identities across borders in many respects. PSD2 with related open banking is one catalyst for change towards the recognition of domestic KYC facilities and the next generation of digital identities together with the GDPR. While a great majority of financial markets regulation does not currently include provisions on crypto currencies, the use of their underlying technologies, such as blockchains and distributed ledgers, in regulated business activities requires making the necessary design choices to align business and technology related requirements with regulatory requirements in order to create a sustainable business model.