Deputy Governor Marja Nykänen: Where is the Finnish and European regulatory environment heading?
1. Unrestricted
Bank of Finland
Where is the Finnish and European
regulatory environment heading?
RegTech Day 27.2.2019
127.2.2019
Marja Nykänen
2. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
Current overview of the financial sector
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3. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
Finnish financial sector
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Banking sector
CET 1 Capital ratio 21 %
Non-life insurance
Solvency Capital Requirement ratio 225 %
Life insurance
Solvency Capital Requirement ratio 193 %
Pension insurance sector
Risk based capital position 170 %
0
50
100
150
200
250
300
350
Finnish banking sector
excluding Nordea, total
assets
Nordea under
SSM/FIN-FSA
supervision, total
asssets
Finnish Banking sector
including Nordea
domiliced to Helsinki,
total assets
Management
companies, AUM
Life- and nonlife
insurance sector,
investment assets
Pension insurance
sector, investment
assets
%
Source: the FIN-FSA
Financial sector indicators for Finland, percent of GDP
4. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
The profitability of large euro area banks is gradually
improving
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6,2
5,7
4,4
5,1
5,4 5,4
3,2
7,1 7,1 7,0
6,0
0
1
2
3
4
5
6
7
8
2015Q1 2016Q1 2017Q1
%
Source: SSM.
Return on equity (RoE) of significant euro area banking institutions
Return on equity (RoE)
34308@ROE (eng)
5. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
Euro area banks’ core banking revenues still under
pressure as the low-interest rate environment prevails
40
50
60
70
80
90
100
110
120
130
2015 2016 2017 2018
2015=100
Source: EBA.
Net interest income Fee- and commission income Trading income
34344@Tuottokehitys EBA
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6. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
Despite improving economy and decreasing credit risks,
loan growth remains modest in the euro area
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-10
-5
0
5
10
15
20
25
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Countries less affected by the sovereign debt crisis
Countries worst hit by the sovereign debt crisis
Euroarea
Annual growth %, Loans adjusted for sales and securitisation
* DE, FR, NL, BE, AT and FI
** GR, IT, IE, ES and PT
Source: ECB.
25840@Private sector (UUSISARJA)
*
**
7. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
Euro area banks have continued to strengthen their
capital ratios
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SSM
Tier 1 capital increased 160 bn €
since SSM became operational
8. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
Development of regulation and banking supervision
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9. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
Financial regulation is largely EU based
Most of financial regulation is EU based
– The Union aims for regulatory harmonisation
– Most of the guidance is given by European
Supervisory Authorities (ESAs)
– Basel III framework provides basis
EU passporting for licenced financial
institutions
Some national rules still exist
– For example crowdfunding
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10. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
The SSM has strived for supervisory level playing field
in Europe since November 2014
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Benefits Similar treatment for all credit institutions
More harmonised, intrusive supervision
Higher standards for the quality and amount of capital
Challenges Ongoing improvement of supervisory processes
Harmonising National Options & Discretions
Increasing delegation in decision-making
The Single Supervisory Mechanism (SSM) is based on the cooperation
between national supervisors and the European Central Bank
11. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
Towards the Banking Union
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12. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
Banking Union
European Deposit
Insurance Scheme
Prudential treatment
of sovereign debt
Single Resolution
Fund
Capital Markets
Union
Integrated
capital markets
”Risk-free” assets -
”Safe assets”
Fiscal Union
European
Monetary Fund
European
Governance
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Developing the Economic and Monetary Union -
the main building blocks
13. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
Pillars of the European Banking Union
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Single Supervisory
Mechanism (SSM)
• Efficient, effective supra-
national supervision with
the ECB at the centre
• Clear separation of
monetary policy and
supervision
Single Resolution
Mechanism (SRM)
• Centralised resolution
decisions for systemic
banks
• Bail-in principle
• Industry responsibility
(resolution fund)
European Deposit
Insurance Scheme
(EDIS)
• Proposal by European
Commission
• Gradual transition to
Single Deposit
Insurance
Single Rulebook (all EU)
Banking Union
14. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
Macroprudential policies
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15. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
What do we mean by macroprudential policy?
“Taking away the punch bowl when the
party is at its best”
Preventing and mitigating the crisis in a
forward looking manner – ex ante policy
– Different from crisis management and
resolution
The scope of macroprudential policy
covers the whole financial system
– But starts from the banking sector
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16. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
Macroprudential policy objectives
The ultimate objective of macro-prudential policy is to contribute to
the safeguard of the stability of the financial system as a whole,
– including by strengthening the resilience of the financial system and
– decreasing the build up of systemic risks,
thereby ensuring a sustainable contribution of the financial sector
to economic growth (European Systemic Risk Board, Recommendation 3/2011)
The ultimate objective needs to be operationalized through
intermediate objectives
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17. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
Macroprudential policy and the future
Much has already been done and achieved
– New framework which did not exist before the crisis
– Increasing awareness of system-wide risks
But the financial system is evolving rapidly
– Digitalization
– Fintech / new competitors (for instance, Alibaba, Google, Amazon, Apple)
In the future, there is an increasing need to
– Extend the scope of macroprudential policy beyond banking
– Address cross-border transmission of systemic risks
– Further develop the analytical framework for the policy impact assessment
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18. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
Digitalization and the future of the financial industry
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19. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
The level of overall state of digitalization in European
countries varies significantly
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USE OF INTERNET BANKING IN SELECTED COUNTRIES
20. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
Innovations: balancing between opportunities and risks
Authorities aim at ensuring balance between:
– Technology and innovations
– Customer protection, operational risks and financial
stability
Regulation and supervision of innovations
raises discussion
– Is current regulation suitable for innovations?
– Do we need more or are there hurdles?
– How to supervise new actors?
Level playing field
– Same activities regulated the same way
– Function-based, not entity-based
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21. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
Conclusions
Financial industry will remain heavily regulated
Regulation should provide a level playing field
Knowledge of regulation and compliance skills are needed when planning to
enter the financial industry
Regtech can provide tools to help with regulation and compliance
– but Regtech cannot fully replace people
The future is for Regtech and people hand in hand
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22. Suomen Pankki – Finlands Bank – Bank of Finland Unrestricted
Thank you!
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