Back to growth despite the triple-witching in banking & with a AAA regulatory recipe


What I heard at the Swiss International Finance Forum

Last week I attended the Swiss International Finance Forum organized by NZZ konferenzen and with a theme “Back to growth”.

Sergio Ermotti, CEO of UBS reminded the audience that all the “Regulations that are killing us” (us the regulated banks) have succeeded in reducing the systemic risk of “too big to fail” financial institutions. UBS specifically, had a balance sheet of CHF2.4 trillion and is now down to CHF 900billion.

The overall cost of regulation in Switzerland is 10% of the gross national product. This is an area still dominated by traditional IT companies (Swiss or global) and from looking into the Daily Fintech Regtech database, we only see Qumram as a Swiss Regtech startup.

On the other hand, even though Regtech doesn’t seem to be a the niche area that Swiss fintechs are focused on, S. Ermotti used the example, of the UBS Future of Finance Challenge from end of last year, that did select two Swiss fintechs as finalists (Embotech, optimization solutions for decision making and Biowatch; wearable authentication startup).

The 45 minute keynote of the UBS CEO, touched upon diverse issues. My take from the stage is that

Europe is in triple-witching in banking:

  1. Overbanked continent
  2. Over regulated continent
  3. Global tough macro environment; below zero conditions ++

The reality is that in Europe we do have overcapacities in banking and we run the risk of banks that are “too small to survive”; we have heavy regulation and we are also in a very difficult macro environment. On top of all this, the Capital Markets Union initiative has been wounded after the Brexit result.

At the same time, innovation is happening here and elsewhere, and technology is enabling us to redesign the back office and improve cost efficiencies.

Ian Goldin, the prolific author and Oxford professor, followed with his penetrating views, insights and voice. I am still hearing in my head “This is the slowest day of your Life” and “If you don’t like surprises, then you wont enjoy the rollercoaster”. In brief, he spoke about the current era as one of rapid innovation, which results from the democratization of the factory of ideas. As a result, our globalized world, runs new risks that can mostly be categorized under the BIG theme:

“Can we Manage the fast pace of changes?”

It is actually very questionable, because in this accelerated globalized world, more and more pockets in the society are left behind quickly (and are led to kick back); and more and more “people” feel that risks are coming from elsewhere; and without going into details, the result is inflexible markets, societies that immigration is rejected and nationalist ideas are gaining power. We are generating at a fast pace, endogenous risks (not black Swans; similar to Brexit that is a very recent example).

The new complexity of the world, can also be seen in realizing that countries are not interested in educating and filling the gaps that are continuously created (by being left behind) in societies. Neither are the tech companies (a la Google) that are bonding us all and co-creating the fast pace.

Remember “Today is the slowest day in your life”. Mark Branson, CEO of FINMA came on stage and was assertive and resonated with the “FAST” mantra of Ian Goldin (without having of course rehearsed or coordinated). He spoke about FINMA being lean, compared to other European regulators, and having overall a lite amount of regulation. He stressed the need to be flexible and to accommodate small companies with niche financial services offerings; by simply licensing them with a different principal based framework. He insisted that they as regulators need to innovate continuously as the market is changing; they need to balance their focus which has been lopsided towards Risk measuring and monitoring, and to give a proportionate importance to Opportunity.

My take from the regulator, is a AAA Regulatory recipe:

  • Be Fast
  • Be Flex
  • Be Forward looking

And the fourth man, Thomas Fortin from Blackrock, spoke about the myths and misperceptions around Digital advice. I was reminded again that the digitization of financial services is for the most part, not about the tech; but about how you use it. This is true especially in the digital advisory space.

Blackrock is a company that has gown through M&A and assimilating the businesses acquired. Thomas Fortin advocated the importance of the people in the business. He did it in two different ways that may seem contradicting but really aren’t. When answering to the question (self-imposed), “What is next in Digital advice?”; he advocated that Digital Only, will become niche and not “where the puck is headed”.

He then spoke extensively, about the acquisition of Future Advisor and their unique choice, first time for Blackrock, NOT to assimilate the business! Full acknowledgement from the leadership team at Blackrock that the value Future Advisor brings to the table is not 100% in the algorithms or UX; it is also in the leadership, business decision making and heuristics of the Future Advisor team, who come with different domain expertise.

The Swiss International Finance forum was evidence, that despite the challenges (e.g. the triple witching in banking) there is change at an accelerated pace happening everywhere. From the regulators, the incumbents and there is no slowing down. So, back to growth by being fast, flex, forward looking and using technology in new ways.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech & operates the Fintech Genome P2P Knowledge Network. Efi Pylarinou is a Digital Wealth Management thought leader.

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