02 February 2017

François Villeroy de Galhau: France: a European powerhouse for financial service innovation

1. What are the challenges for FinTechs? 

When I think, in turn, of what the Banque de France and ACPR can contribute, I’d say this: stable, reliable and agile regulation. Stable because we have a strong anchoring in European regulation: this means that FinTechs established in France can offer their services in all countries in the European Union – it’s what we call “the European passport”. Reliable, because we strive to limit potential risks, so that innovation is always synonymous with customer protection, payment security, IT security and financial stability. But also agile, because innovation must not be stifled by administrative red tape; that’s why we are developing regulations that are based on objectives and principles rather than on rules, and that are proportionate to the scale of the risks. New FinTech players also help to stimulate competition with digital incumbents, and in particular with the initiatives launched by the US web giants. The industrial stakes are high: we need to foster this active competition, which is by far preferable to monopolies, even technological ones. Stable, reliable and agile regulation is a basis for confidence. And confidence is a basis for success in innovation. We want to build this regulation with your active participation. We need your answers in order to transpose PSD2 quickly and efficiently; we also need your active involvement in order to build the best possible RegTech.

2. What are the challenges for the French financial industry? 

In the case of banks, it is important that they rethink their sources of income: one response could be to diversify the range of services – both proprietary and via partnerships – that they offer to customers, and possibly change existing pricing policies, with fewer flat-rate prices and more pricing by use. The digital transition will also involve preparing for shifts in jobs and in skills, through dialogue with social partners. It will also require adopting an open approach, with the creation of partnerships with FinTechs and the scientific community. Finally, it will call for major IT investment to provide services that are increasingly aligned with customer needs, to reduce structural costs and improve regulatory compliance. IT systems will need to be – and this is the crux of the challenge – more secure so that they provide strong protection against cyber-risks, but at the same time more flexible and open to interconnectivity. In the case of insurers, the digital revolution is also starting with a complete overhaul of customer relationships and user habits. But it goes further than that. I’d just like to underline two topics that I think are essential. First, with the help of reinsurers, insurers need to be capable of meeting demand for coverage against cyber-risk, a concern that affects all companies – both small and large. Yet in 2015, fewer than 5% of French companies and 6% of individuals had some form of cyber-insurance. Insurers can and should take inspiration from their own experiences in tackling cyber-risk, and use it to develop a more mature French and European cyber-insurance offering. Second subject: data and big data, with the spread of connected objects that is triggering an exponential rise in the amount of data available on insurance policyholders. Naturally this represents an opportunity: the traditional business of insurance consists precisely in collecting and exploiting data in order to quantify and put a price on risk. Nonetheless, I would urge insurers to take a responsible approach: we need to strike the right balance between segmentation and the sharing of risk between policyholders – the basic principles of solidarity and risk-pooling that are intrinsic to insurance are at stake. And we must not lose sight of our collective values regarding individuals’ right to privacy.

3. What are the challenges for the French and European economy?

for an economy to be competitive and to grow, it needs to increase innovation and its diffusion, not slow it down. The digitalisation of the financial sector can accelerate this positive process: it helps to disseminate technological advances such as electronic signatures, solutions to defend against cyber-attacks or distributed ledger technologies. Innovative and secure payment solutions, such as tomorrow’s blockchains, are also helping to speed up the development of e-commerce and modernise physical trade. Achieving this will require greater harmonisation at European level: in the precise application of the texts governing the financial industry (definition and security of payment services), in more recent fields (crowd-funding) or in the search for greater interoperability of technologies and standards. But, above all, it is vital that we define an overall strategy for European innovation in financial services. This strategy must cover all the issues raised by digital finance: from data protection to the fight against money laundering; from IT security to consumer protection; from financial stability to the social challenges of banking inclusion; from financial literacy to changes in jobs in the financial sector. It is a project currently being conducted by the European Commission. And the Banque de France and ACPR are both playing a part. Europe depends on it; its independence from the other big global regions depends on it; and so too does the strength of its economy. [...]

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