Regulatory supervision must evolve to cope with the speed of innovation within financial services, policy makers, supervisors and regulators agree.
A lack of “smart” implementation by supervisors will hinder an EU-wide regulatory standard, said Christopher Buttigieg, chief officer of strategy, policy and innovation at the Malta Financial Services Authority (MFSA) during a panel at the Fintech EU 2020 conference in Brussels today.
“I think it’s very important to mention the principle of proportionality and applying better the principle of proportionality depending on the size and complexity of the business, and in addition to that also trying to find new ways to implement smart regulation and smart supervision," he said.
"One of the points that I’ve been discussing at the office and raising over and over again is how are we going to develop supervision for the digital era. Yes, this will involve great investment, it will involve trying to find new ways to carry out supervision, but clearly we can’t continue doing supervision in the way we’ve done it for the past 20 years. This has to evolve. We need to find technological means for how to achieve our goals.”
According to Buttigieg, supervisory procedures must become amenable to technology, especially with regards to developing a data-driven approach to supervision.
“This is something where Europe can do more. At the moment we have a lot of investment in terms of how we use our data for supervisory purposes in 27 different jurisdictions. Having more consolidation and more centralisation, having more investment will allow us to maximise our resources as supervisors and also benefit from economies of scale.”
Different approaches to supervision have long presented supervision issues within the EU, according to Peter Kerstens, European Commission advisor for financial sector digitalisation and cybersecurity.
“We see [innovation] hubs, we see sandboxes, we see all kinds of different instrument and I wouldn’t say that one is necessarily better than the other, but what’s important is usually these tools are a reflection of the supervisory attitude. More important than whether it’s a sandbox or a hub is what attitude the supervisor and the regulator take towards innovation.
“Now we have to bear in mind that supervisors supervise – they implement our mandate, and these mandates are not harmonised across the EU. Some supervisors take a fairly narrow mandate which is specifically for financial stability and are only interested in stability, others have a broad mandate … and you see that very much reflected in the way they engage or engage less with innovation,” said Kerstens.
Mitchell Silk, acting assistant secretary for international markets at the US Treasury said cross-border harmonisation is essential to the proper implementation of data within supervision. Complications arise when global flows of trade and finance are flat, while global data flows are growing exponentially.
“We’re very much looking at matters of how to deal with proportionality and how to deal with harmonisation from the standpoint of really two dimensions – on of them is a national level which is divided by state and the other would be international and global,” said Silk.
“We have an engagement within US Treasury that is very focused on harmonisation of the regulation and the control of data flows throughout the globe, and this is probably one of our key priorities today. We’re very much looking at the global mapping of data flows, the sheer volume of data flows, and where the pressure points might be on the free flow of data through local regulation which is of immense concern to us.”
According to Kerstens, areas within the EU with the highest fintech growth such as Lithuania and Estonia all share a common engagement between supervisors and innovators.
“It’s not because something is innovative digitally that it’s unstable, it’s not that it’s speedy or digital that it affects market integrity. It could actually lead to more market integrity, lead to more efficiency, so really I’d say we don’t want to say ‘you have to do this or that,’ but we want to tell all supervisors to engage in innovation.”