On May 12th, 2016, I had the great opportunity to attend the 6th Frankfurt Finance Summit, which is organized by Frankfurt Main Finance (FMF) in collaboration with Frankfurt Institute for Risk Management and Regulation (FIRM). The annual summit, highlights the importance of Frankfurt as the center of financials stability and bank regulations in the Euro zone. It gathers Central bankers, regulators, representatives of the supervisory authorities, academics, financial politicians and practitioners together to discuss current financial issues from different perspectives. The focus of this year’s summit was digitalization and its impact on different players in the financial market. The discussions and speeches were divided into four parts:
Digitalization – The Dawning of FinTechs
The Summit started off by Dr. Lutz R. Raetting, Chairman of the Executive Committee of FMF, expressing his pleasure with sustaining the summit for the 6th year in a raw. Refereeing to the title of the Summit, he pointed out to the fact that we are all always “On The Move”, be it voluntarily or due to someone else pushing us to. As digitalization is the main focus of this year’s summit, he mentioned that the number of FinTech companies is increasing in the region and specifically in Frankfurt. The reason for this is the ideal conditions Frankfurt provides FinTechs with, in terms of the proximity to the regulator, as well as the best environment for the internationalization of their businesses.
In support of this view, Hessian Minister of Economics, Energy, Transport and Regional Development Tarek Al-Wazir highlighted the fact that Frankfurt will open its Fintech center in four months with the goal of improving the communication between start-ups, banks and regulators. This in turn will attract investors to Frankfurt and will position the city as an “innovative location for IT-driven start-ups in the financial sector”. Additionally, Al-Wazir stated that the current financial sector is undergoing fundamental changes mainly due to the economic and regulatory conditions and the ongoing digitalization, which explains the focus of the summit.
Examining the impact of FinTechs on the banking sector, Mr. Gottfried Leibbrandt, CEO of SWIFT, explained the concepts of Blockchain and Bitcoin and how they would impact the banking sector and SWIFT. Nevertheless, he believes that banks will make it through, just like they did in the 90s during the first wave of FinTech and the rise of online banking and electronic trading. The key for banks is to make use of those innovations to facilitate their work and not allow them to take over their work, whereas the main threat remains to be cyber security. On the other hand, Hauke Stars, Member of the Executive Board of the Deutsche Börse AG, believes that only those institutions that are able to adapt to the changing environment will survive. In accordance to this view, Roland Boekhout, Chairman of the Management Board of ING-DiBA AG, stated that cooperation with FinTechs in essential, because their technologies and services may be in the interest of their customers.
Redefining Banking – Regulatory and Economic Challenges
Another interesting topic discussed in the summit was the merger deal between Deutsche Börse and the London Stock Exchange. Mr. Carsten Kengeter, CEO of Deutsche Börse, explained the completed steps towards this merger, as well as the implications of this deal on the capital market and the benefits associated with it.
Furthermore, this panel discussed the potential implications of the capital market union on the banking sector, future regulations and the impact of what is believed by some to be BASEL 4, as well as the future of some financial institutions, giving the changing regulations and the rise of digitalization. Although past regulations have resulted in a more resilient banking sector, new ones are believed to make the conduct of some activities more difficult, hence hindering banks from realizing much of the profits they used to gain. Regarding the impact of digitalization and FinTechs on the banking sector, it is believed that they will change the business models of banks. Therefore, it is essential for the supervisory authorities to find the balance between supporting innovation and protecting customers and the financial system as a whole.
Tectonic shift – Where will finance move to?
Federal Finance Minister Wolfgang Schäuble’s speech focused on the proposed referendum on the Brexit and its impact on the future of finance in the EU. Although he advocates that Britain should remain in the EU, underlying its importance to the union, but should the referendum result in otherwise, the exit phase should immediately begin. He believes that Prime Minister David Cameron had negotiated a good deal and that no further concessions and renegotiations would be possible, in case of a majority votes for the exit. Hence he stated that “in means in, and out means out” with all the implications this might have. Additionally, Federal Finance Minister Schäuble highlighted the fact that in addition to the Single Supervisory Mechanism, there are still other areas in banking regulations, as well as fiscal budget, policies and security that will continue to improve in the future, with or without Britain.
Discussing the importance of technology to the financial sector, Mr. Diwakar Gupta, Vice President of the Asian Development Bank, explained, using India as an example, that new technologies, like mobile banking, allows the large portion of the population living in rural areas to access financial services. Additionally, governments should also make use of such technologies, for example to make sure subsidies really reach the poor. Mr. Gupta believes that the biggest challenge for technology-based financial services is getting people to use it for the first time.
Overall, attending this summit was a great experience exposing us to the main topics that might affect the financial sector as a whole and its main players in the near future, with insights from top notch practitioners, as well as financial politicians and regulators of the field. Such unique experiences that Frankfurt School provides to its students, along with academic excellence is what differentiates it from other schools and universities.