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Fintech Updated: 13 Apr 2018

The challenge for the financial sector: reconciling regulation with technological change

Luis Robles Miaja, president of BBVA Bancomer, closed the Seminar for Latin American Regulators by asserting that the banking sector “cannot be removed from technological change.”  On the contrary, it is obliged to “adopt it, for the benefit of society, and create more secure financial institutions.”

Luis Robles en seminario BBVA - BID

Robles recalled that the financial sector is not removed from the so-called Fourth Industrial Revolution  (the technological one), which has transformed human activity in a radical and dizzying manner in just a few years. “Practically all the technological advances are applicable to banking. Technology has provided enormous advantages that raise the level of wellbeing, in every sense. For example, banks today are more secure and have greater tools for control,” he pointed out.

The president of BBVA Bancomer stressed that regulation is essential for protecting the financial system, because it´s not just any sector of the economy. He said the big challenge is to find a way to “marry prudential regulation with the technological advances, so as to create a strong regulatory framework that promotes healthy banking institutions and a solid financial system.”

To achieve that, Robles said, it’s important to always be in the process of updating, reflection and evolution. He invited “the regulators and the regulated to work together, with a prudent vision that is combined with the vision of development that technology has provided.”

Participants of the BBVA-IDB Seminar on Regulation share their opinions.

From onboarding to the value of Regtech

The second session began with a panel on the principal challenges of Digital Onboarding. It was moderated by Carlos López Moctezuma, head of New Digital Business at BBVA Bancomer. The panelists stressed that both regulators and financial institutions are obliged to undergo a change of mindset. The challenge for the countries – they agreed – is to create dynamic financial regulation that can incorporate new technologies into the banking sector, allowing for a more competitive market, with an exchange of strengths among the new financial players and the banks. This, in turn, will create experiences that bring customers closer to the financial transformation.

Conan French, Senior Technology Advisor at the Institute of International Finance (IIF), offered a detailed view of the different ways in which technology can help regulators from all latitudes to perform their supervisory tasks.

“In an uncertain macroeconomic and financial environment,” he said,  “applying Regtech can make an important contribution to increasing the profitability and efficiency of financial institutions, while improving their effective compliance with regulations. By making compliance less complex and demanding of capacity, Regtech solutions can free up capital for more productive uses, increase  the competition to remove entry barriers, improve the quality and efficiency of supervision and reduce systemic risk.”

Seminario reguladores BBVA - BID 4

BBVA Bancomer's Carlos López Moctezuma (third from the left) moderated the online onboarding panel, with participants Rudy Araujo (ASBA), Miren Aparicio (Columbia University), Pedro Solana (Banamex) and Carlos Orta (Mexican regulator CNBV)

Cloud computing was one of the protagonists of the second session, where the participants included regulatory officials and executives of Microsoft and Google, two of the leading companies in cloud services. The potential of this exponential technology has made it the cornerstone of digital banking, so regulating it is crucial for financial institutions.

According to the representatives of the technology giants, the key lies in combining control with agility, and in harmonizing regulation to help consolidate it. Everyone agreed there is a great ignorance regarding cloud services, which has generated some reticence that is not based on fact, but on opinions. This, they said, can be resolved by a serious effort at education and a closer relationship with the regulators, so they can see first-hand how the cloud enters into the equation of the new financial services.

Seminario reguladores BBVA BID 1

IIF's Conan French during his presentation.

The value of APIs

Ian Cox, of the New Venture Creation area of BBVA, addressed one of the most popular topics of the moment: the APIs, or how banks are moving towards so-called “open banking.” BBVA has just launched its API Market, and has become one of the first large banks in the world to bet on open banking, a step that is expected to drive the development of a great number of new products and services for customers.

According to Cox, the role of the regulators will depend on the specific role they want to take in each of their respective countries. But without a doubt, they can play a fundamental role in accelerating the fintech ecosystem since, in his view, the regulators should set this as an objective.

The seminar concluded with the presentation of the 2016 report on fintech in Latin America, published by the Inter-American Development Bank (IDB). Gabriela Andrade, head of Finance and Technology at the IDB, said that “fintech companies don´t see themselves as competition for banks, but rather as a response to the demand for tailor-made products that are focused on customer experience.” The report reveals an exponential growth in enterprises of this type in the region (there are 700 in all) and a high concentration of them (90% are located in five countries: Brazil, Mexico, Colombia, Argentina and Chile.)

Seminario reguladores BBVA - BID 2

Dave Dadoun (Microsoft), J. Miguel del Río (Bank of Spain), Isabel Davara (moderator), James Snow (Google) and Fabio Irino (Accenture) exchange ideas during a panel devoted to cloud computing.