 Welcome back. Good morning again. This is the first panel and it's going to deal with retail integration. Bottom up or top down. I've been working on financial integration since about 2000. I can see some people who are working with me at the time in the room. And I've always considered retail integration to be the hard part. The rest was not easy, believe me, but this has always been the harder part. And before I open up to the panel, you know, the reason I've always found it to be hard is because there's always a trade-off between financial integration and protection of investors, issuers, protection of markets, et cetera. This is a trade-off you have to make. This trade-off is already difficult in wholesale markets. It becomes slightly more acute in retail markets because of the asymmetries that exist, the greater asymmetries that exist. And before I came here, I was reminded that we recently did a consumer barometer, an EU barometer. We do these things all the time to see how people are feeling. And the outcome of one of these was that the consumer doesn't really want to go across border. He's not that keen. And the question is, is he not keen because he doesn't want to go or he's not keen because he doesn't know what's out there? And that's always a little bit in the question. Another question for me throughout all of this has always been when we're protecting retail investors, are we protecting them from risks only or do we also sometimes protect them from choice? We have recently done a report on asset management which show that nominally 50,000 options are available to the retail investor, but that in reality when he goes to his bank he's offered three. And typically there are three from the bank itself. So again, we have to get this balance right between protection and from choice. What makes me optimistic around this area is, of course, digital. I think many of the natural barriers that people like Caroline Lanoux and myself wrote about all those years ago, language, proximity, all those natural barriers don't seem so natural anymore. Now that you can go on internet, which does not have any borders, you can press buttons that convert this into multiple languages so you don't have any languages. And when is the last time any of us has been to our bank? I can't remember the last time I've been to my bank. So some of these natural barriers which were always there are perhaps not there anymore. And so this maybe gives us a new opportunity to think again about retail integration and to perhaps be a bit more optimistic about it. And that's what underlay the Retail Financial Services Action Plan that the Commission put forward recently. This is sort of, we have been here before, we have done these things before, but we're a little bit more optimistic this time that we might be able to make progress. So having poisoned everybody's mind with those introductions, I'm now going to hand over to people who actually know what they're talking about in terms of retail and we have very expert panelists here who will be able to tell us all about the benefits and risks of retail banking integration for the players and the strategies that could make it happen on the needs for further policy interventions, et cetera. Now I have 90 minutes for this session, so what I would like to do is to essentially give everybody 10 minutes to do introductions, then maybe come back and spend 20 minutes responding to each other's comments and then I will throw it open to the audience to have questions. And I'd ask the panelists, they're going to focus on this, the topic at hand is top-down versus bottom-up, which is the best way to go here. So before I hand over to them, let me just very briefly introduce the panelists, all experts, all brilliant. We have Victoria Eva Sheena, who is the Love It Learned Professor of Business Administration at Harvard Business School. We have Arno Walter, who's the CEO of the online bank Comdirect. We have Monique Goins, who is Director General of the European Consumer Organization. And then we have Jose Manuel Gonzalez-Paramo, who is an executive board member of the bank BBVA. So all experts in their field are all going to help us to work out the answers to this question. Should we do it and should it be bottom-up or top-down? So I'm going to start with Victoria, I think. And I have to now multitask here, because I have to find your... I was told that I'm the only person who is using slides. I'm feeling very guilty for that, but there are only three slides. And the reason I thought I'll use slides is the following. So first of all, it's a real pleasure to be part of this panel and as somebody who spent a lot of time thinking about the cost and availability of credit, I'm very fond of this agenda of integration. I think it's extremely important and the steps that have been already made are really impressive. But I thought that I will highlight two fundamental frictions and housing manifest themselves in the development of the integration. Now coming from US, I'm going to allude to US. So we brought up US in the earlier panel, in the earlier discussion as this freak of financial development. So with that in mind, and because of course of fiscal, political integration, the cultural integration in the past year and a half had been put to test, but I think that we are coming together. And so with that as the background, here is some dramatic facts. So the deposits are very sticky and this relates to the point that was raised by John already, that if you conduct a survey, people are not that eager to switch banks actually. So if you just take historical information, let's take a two-year rolling window. So then in any given year, within geographical area, the movement between the banks of the market share is essentially zero in deposits. So nobody leapfrogging anybody. Now that's on average historical, but there have recently been elements, and this is coming from my own research, where we've seen actually movement. And that came in the context of financial crisis where several banks have been handicapped, their balance sheet had been severely affected, and so that gave an opportunity for reshuffling of this otherwise very stale movement in the deposit market. So if you look at the period, two-window period between 2006, the start of the subprime market 2008, the gain in the market share is 2.5 percentage points. It's still very tiny, but that's actually all of one standard deviation thinking in historical terms. So it's large by historic standards. And then if you just think about 2000 through 2015, in some markets, and there is actually, this is something worth emphasizing because much of the analysis that I had seen aggregates the European markets all together, but actually within U.S. you can see that there is quite a bit of variation, not all the pockets of the U.S. market are created equal. And those markets where the competition was the lowest, you could observe actually the highest rise in market penetration in the deposit market in the post-crisis period. So you can see up to 10% increase. But overall, you can see that these numbers are rather low and its line is stickiness and in the next slide I will show you some consequences of that. And of course, U.S. also is a nice market in that if you think about 1970s or 1994, there was a wave of geographical deregulation that led to penetration of the deposit market and the magnitudes are the same. So the punchline of this is that the stickiness is out there and we should have with that in mind and given that U.S. is a very particular market where if anything you would expect that the flow predispositional shift banks would be actually higher. I think that it's good to set some realistic expectation. Now, the reason I'm starting with the deposits because of course it's not an unrelated point to thinking about credit, right? And so now this point is about stickiness, translate to lack of competition and deposits which in turn translates into the cost of funding and it's been documented that the gap could be as large as 50 basis points on average and more recently we know that the evidence is in 10 years leading to the crisis is that the spread that U.S. banks get to pay on deposits is actually huge, 2 percentage points and it's flat. U.S. monetary policy moves up and down, the pricing on deposit doesn't really move. So that's kind of where we need to think about what might make us move away from that starting point and perhaps money can provide us inside of how to deal with consumers. On my side I want to highlight the point that also comes from my research that as we gain the market share in the deposit market it's very important to look it in and from the top down approach I think that the initiative that comes here that seems very important here is common deposit insurance. Of course locally everybody is deposit insurance but this cultural integrity in terms of feeling safety of being able to cross open deposits with a foreign bank or cross border deposits comes out very important and indeed in the U.S. context it's the uninsured part that you can see moving around and affecting the market share. Now there is a development that's been brought up already several times of course that is a bottom-up development that came to be known as a FinTech and been known before for many years with many other names and of course there are many elements of the FinTech many of them actually are things that we are thinking about and keeping eyes on but one thing that does bite and is very important for the same reasons that I alluded to already that nobody here probably goes to the bank anymore to deposit a check is the fact that the digital experience and its availability and quality is very important for choosing a bank. Now that's why academics been lagging in providing good quality research because there is little data but there are good consulting reports that have been coming out based on the survey data building on that observation and the magnitude that the time period is very short over which we can assess the switching behavior as a result of the retail bank in digital quality but we've seen the uptick in the shifting of the depositors across the banks as a result. One important observation on the background however there is a clear demographical distribution and who tends to embrace digital as a factor in their behavior would they go across the border or not and that tends to be younger generations and so if you think about it of course the wealth is distributed in the opposite direction so as a younger generation become older and wealthier the strength will propagate more actively. Now less on the deposit side even though it is an important point on the deposit side on the credit side the tech part the friction on the credit side is the information and so because any fantastic model that you can build for assessment of credit quality ultimately depends on the input and granted that the tax differences the bankruptcy process are all important ingredients of this assessment of the credit quality but ultimately so are cultural aspects and there is a list of them that you can think of and again they might be relevant in deposit but they are particularly relevant in the credit side. So a simple question to ask if you're a German bank and you have you succeeded in building a model scoring model that is absolutely fantastic in assessing easy credit quality of German consumers or entrepreneurs small and medium enterprises can you take that model and apply it to Spain? I think there are several people who can respond to this question better than me in this room so let me stay away from responding but if the answer is no then the process for this is rather slow because at the German bank trying to enter Spanish market you would need to first somehow get your hands on that data on the standardised and quality data which is not in an obvious way achieved through a merger and this is a factor of bottom up process slows down especially on the credit side and I think that's where the opportunity for the top down comes in to facilitate this to focus on the elements of the information that could facilitate penetration of the tech market on the credit side or perhaps on the deposit side as well those are my remarks Thank you very much Victoria I mean this is quite interesting because I mean deposits were also quite sticky in Europe during the crisis remarkably sticky in fact even during the crisis and it would be interesting to know whether or not digital will really make deposits less sticky or not I mean I as I said I don't travel to my bank but I haven't changed my bank I just use this digital output this brings me then to Arno who is the CEO of a German online bank so I mean you could be regarded as an example of a new way of banking which is very successful and many consumers are quite happy now as we have said in the war so in theory it shouldn't matter whether your bank is in your country or not but I think your experience maybe suggests that it might so look forward to hearing your comments on that Yes thank you Yes it does mind so as you said we call ourselves sometimes one of the oldest FinTechs in Germany as we have been founded in 1994 but for the first 20 years this was a time when the word was invented so starting at the end of 2014 of course we are a digital bank and an online bank and what was interesting for me is we did that already in 1999 we entered three different markets because we thought at that time after five years of success in Germany that our brokerage business is really a good one we chose different ways for the UK for France and for Italy and well three years later we all closed down I think one took us until 2004 it was far before my time so if we talk about retail banking integration I think you can look at it in a three fold way if you look at the banking as an institution I think we have done a very good job or the EU has done a very good job over the last 10 years so we have now much more stable banks we have done a lot on risk assessment, credit assessment stability on banks etc etc so the bank as an organisation I think we are quite good on our way to have a common European market from the rules and wrecks we have for the bank as an organisation if you look to the markets we have just learned that we do progress but still some things to do but I think even there we are in a good way if I look on the relationship between the bank and the customer when it comes to products and services well we could even say we have just not yet started to have retail banking integration so what is the problem why we have just been elected as Germans best bank by nationwide test so why don't we do cross-border business and the answer is very simple because it is still too complex and it still costs us too much money and integration costs because even if we use the European passporting we still need independent solutions for each and every country not only for tax but for customer protection laws for data protection laws although we do a big step forward now with the new initiative and the legitimation process everything is different from country to country so then even if you have some banks today who operate in different markets what they do is they operate in each and every country with a different set of rules with different technologies sometimes and you need all to maintain that and to develop that further and I think that's one of the really big issues we have and even if we try to do that with a bottom up approach I think it will never happen so because if you leave it to countries themselves it will take us a far too long time to have a really one retail banking market I will give you a good example for that so on one hand I am in a different opinion like you John when the 3rd of January for me was a quite important moment because we have 400 agents in our call center and it was extremely busy day for them because none of the customers of Seoul they have sent out a lot of documents and they didn't understand what's happening if we explain ex under costs and things like that they just wanted to do their trading as always and said why is now everything different well in the meantime the customer gets used to it but that is something which was new for the customer and if I look at MIFID 2 and its implementation we found now a very interesting situation and I think Subhafen in Germany is just doing an assessment on it so if you have a German company like Comdirect of course we have implemented MIFID 2 with some I should call it with some additional rules and regs from the Barfen for the German market if I look to my competitors and one has a mother company which is located in the Netherlands and one has a mother company which is located in France where we all three have somehow similar but in the end different solutions implemented after the national regulator how he has interpreted MIFID 2 so I think the MIFID itself is about I think 170 pages or something like that all documents together we had to look at were 30,000 pages with all the additional information we had so therefore and if that is true for a German bank probably will not be very much different for a Spain bank probably Jose has much more experience on that for the Spanish market and if we go back if we want to really have full retail banking integration and of course then we need a top-down approach and more clear rules and regs which cannot be changed by each individual country to their specific needs what they think is best for their customers and for their competitions so final remark on that I always try to find out because you ask if it's about customers from risk or even from choice well as I'm interested in what's happening around Europe and in new products and services I always try to open up accounts in different countries I can tell you it's just not that easy to be honest I think I only made it once because even for example even to the German speaking country there is a very famous mobile approach by the Bank in Austria which is called George it's a fantastic product I have looked at it when I was in Austria I would like to open up the account from Germany but unfortunately it's not possible to do so although it's a digital product it's still only available in Austria so final remark is it important to have common European retail banking market I think yes for maybe a totally different reason if we believe that we have seen the beginning of the digital revolution and what's happening in customer behavior and services we need for the customer it's always a business of scale and if I only can implement a solution to some million customers in Germany which is even the biggest market I don't have immediate access to the other 250 million customers in Europe and that's exactly why most of these innovations come from the US or from China because we're lagging off a large enough market to have a fast development of economies of scale to get your money back from all the money you have invested in new technology so therefore I'm a big fan of a single European retail banking market but there's still a lot to do for us so that a bank like Comdirect could start cross-border business yeah bottom up is certainly complicated we would agree with you I mean that's one of the reasons why I said integration is always hard because you are confronted by 28 different national consumer protection laws people feel rather safe in those national protection laws and therefore this may also explain why when you ask consumers do they want to go cross-border as they say well maybe I don't because I feel safe enough in my own and I'm not sure what's out there so that would suggest that we could move to a top-down approach if that top-down approach can be in such a way that it convinces everybody that they're as safe as they are today but as you've said in Mifford top-down approaches that try to do that can also become extremely complicated because frankly speaking we end up including everything we end up with the maximum and leaving discussions for people to go even beyond that so the top-down solution can also be complicated but Monique is here to tell me whether or not it should be done and how it should be done. Monique. Thank you very much, it will be a challenge to stick to my ten minutes because I had a speech prepared and I had to respond already to some of these. Yes I know I see it. So good morning, I'm really delighted to be here and also I would say on behalf of the European Consumer Organization very happy that we are part of this conversation on a regular basis every year we are being invited and so what I would like to invite you to do is to with my presentation to look at market integration bottom up from the consumer perspective and what does a consumer expect from an integrated financial market in fact what's the consumer expectation and can I just make a little parenthesis you cannot imagine how complicated it is for a normal person like me to understand your bubble language this morning I have been struggling and I think I'm quite educated struggling so much with your acronyms with all those complicated very very financially specific language so translate that to the consumer translate that to the condition in terms in the contracts and you understand why people are very very afraid of engaging in reading those things but just that's another way of being bottom up is use the language that is used by the people that you are trying to have as clients but from the consumer perspective they want easy access to suitable non-toxic safe financial services that they are able to understand in all their implications and when things go wrong they would like to have adequate easy solutions and assistance and also bottom up is and there I would like to respond when we speak about financial market integration here what I've heard is the financial institutions going cross-border but look at the other way around look at the consumer going cross-border because the Eurobarometer statics it was not 100% of consumers who would be able but if there are even 10% of consumers who are going to shake a little bit of their volunteers there and the segmentation that is taking place that might be a game changer and if the consumer is the active one you don't necessarily need to comply with the national legislation in place of the consumers country of residence so look at that and from that way accept customers who come from abroad rather than trying to go abroad and by the way speaking about consumer protection legislation that might be complex and I can understand that concern but there has been a study that has just been finalized by the European Commission I don't know whether it's already public my colleagues have seen it which indicates that there is not a lot of examples that can be given by the providers on typical hurdles that exist in terms of consumer protection a lot has been harmonized in fact that's a major can I say result of market integration a lot of consumer protection financial consumers has been harmonized at European level so there is quite a level playing field there when it comes to the legislation where the problem lies and that would be one of my statements here is with enforcement enforcement of consumer rights there the market integration collapses so I would like to speak about that also about market access a little bit to respond to your question and on FinTech in my last point if the bell doesn't ring too early for you so what we see is that even if we have a consolidated or harmonized consumer protection legislation at European level the national authorities are in charge of enforcing consumer protection now there is not one single model of supervision you have different types of models one being that the same authority combines prudential control and enforcement of conduct as business rules and there let's say not only is consumer protection the small part of that focus and not really focus at all and there can be conflicts of objectives because market stability and consumer protection can be conflicting and so we believe that joining these competences these portfolios is to the detriment of consumers in those countries where this combined supervisory authority exists then there is the Twin Peaks model there is an authority that is specifically designed to protect consumers so no conflict of interest specific agendas we believe from the consumer protection perspective that this is the most effective system of consumer protection it exists has been rolled out in the Netherlands and in Belgium and it's been considered by under countries we really would like to all authorities to explore this possibility but then also there are a lot of gray zones where we don't really know how to approach of protecting consumers there's a lot of no man's lands of gray zones and that means is it the consumer protection authority is it the financial is it the competition authority and nobody acts at the end of the day and what that means is that if you have those gray zones and this is really a major problem on the bottom of the market integration is the more the loser the safety net the more space for unfair marketing practices and miss selling there are a huge number of miss selling scandals that happen all over Europe and the timing is not perfect but in a few weeks time we are going to publish we are going to launch a campaign which we call the price of bad advice which has within its different features a website where we really indicate on the map all the massive miss selling scandals that have happened in Europe over the last years where thousands and thousands of consumers have been misled have had damage financial damage some have been compensated some are still waiting for compensation some will never be compensated I suppose that you all know the PPI scandal in the UK there has also be a PPI scandal in Poland has taken 10 years before there was one authority because EOPA acted in order to let's say boost action at national level but between 2005 and 2014 there has been a ping-pong battle between the different supervisory authorities in Poland and no consumer has been helped during those 10 years now there has been a recommendation to the banking sector so that means that this is the type of things that has to be really addressed and we believe that the current review of the European supervisory authorities is really a very important moment where you can improve you can improve the consumer protection mandate of the SS you can improve their resources because that's of course the most important thing is to have the resources to carry out to implement ambitious policy and also to provide them with the mandate to impose binding standards on the national authorities in terms of powers, of tasks of resources when it comes to consumer protection and what we also would like to see and it happens in another sector and it's really a best practice is the SS should coordinate and pool national supervisors in order to engage in common activities there are many many European or at least multi country financial problems or misselling cases or unfair marketing practices that are addressed to consumers and they should certainly be addressed in a coordinated way by the supervisory authorities this happens in the consumer protection area it's called the consumer protection cooperation network where the commission facilitates the coordination between the authorities and as they team up much more power towards companies like Apple for example or like rental car rental companies when they with 27 or 28 go out there then that is quite an impressive power of persuasion towards the company that is not complying by the way in the new consumer protection cooperation regulation there is also a role of whistleblower for the consumer organizations meaning that the consumer organizations can flag problems for the most part of the market the most important organizations our members know what's happening on the market and if we can have a space for the authorities to at least listen to us they cannot be obliged to follow up but at least have a have an attention to what we flag that would be certainly also a way forward when it comes to the markets as I mentioned even if you have a level playing field from the consumer perspective you only can feel or perceive market integration if you are able to buy in a foreign in another country or from a foreign provider and what we see there is that there is quite reluctance to do so and you speak about complexity and you speak about the reasons why are we sticky for bank accounts and there is of course a problem of it's some sort of you get your bank account as a kit more or less and then you are very loyal to your bank that's not necessarily the good reasons one of the issues is the complexity of changing or the perceived complexity of switching nothing is done to explain to consumers that it's quite easy to do so and that there is even rules that exist to help you to do so so nobody really wants to to help the consumer going into switching and this is and also sometimes there are tying conditions and for example in Italy one of the misselling scandals is that you were tied if you took out the mortgage credit you were really tied to the bank account so this is something that of course prevents by cross selling by bundling the financial service providers block the consumer in being voting with their feet by the way can I suggest a coordinated activity there for the national supervisors because we have a payments account directive which allows a consumer to open a basic bank account in another EU country so it would be a great it's not I can't share with you the methodology to do mystery shopping but do a coordinated mystery shopping exercise and try to open a bank account across Europe and then you will see how the market reacts because that's a right now under the directive so normally financial providers could not oppose you and not to use that right and it's not it's I mean you are the active consumer so no excuse about you have to come the bank has to comply with foreign legislation no it's the consumer goes to that other country and I would say this rule you know the know your customer rule which is very often opposed by banks to the fact that I'm a foreign customer so they don't want to open a bank account for me I only can smile because as you I have not seen my bank or since decades but also with online banking how do they know their customer how do they comply with that obligation so this know your customer obligation is a little bit can I say fake my last remark if I still am allowed on FinTech I believe it's a huge opportunity to increase competition in the banking sector so it will shake a little bit a too cozy market and that's certainly a very good thing so please we are in favor of FinTech solutions however it is very important to not rush under the under the carpet the problems that come with it that are for the moment out of the supervisory radar of the financial supervisors being privacy protection being cybersecurity especially and there what I would like to say to you is you really have to work out of silos not only working when I speak out of silos in the financial area I could be saying the banking authority has to work with the insurance authority or with the investment authorities in charge you have to also work with the cybersecurity agencies with the data protection agencies because those the problems that are for consumers going to raise with FinTechs are out of the zone of expertise of financial supervisors and I just saw the video of the European Central Bank about cybersecurity about the promotion of ethical hacking yes but how many ethical hackers will we need to be able to really make the system secure I really believe that there must be also an out of silos and a cooperation creating an overall regulatory environment where consumers can feel safe and really I would like to insist on that in my work I mean I'm not working only on financial services there are two major global threats antibiotic resistance so not really I mean your interest as a person for sure and cybersecurity I think that cybersecurity has been and the lack of cybersecurity has been by too many authorities just put the head in the sand and maybe it won't happen to us I think that there must be major investments because they can bring the country the system down very easily and we have done some life hacking in some of our conferences on internet of things it's very easy if you're just an average hacker finally my key message that I would like to you to take back from my little intervention is very important for market integration from the consumer market to have a living playing field with legislation we are happy that there is already a high level of integration at that stage but this will only be valid if on the ground national supervisors are also having an integrated approach towards how to protect and how ambitiously to protect consumers thank you thank you you crammed a great deal into one presentation I'll be very interested to hear how people respond to the various things I'm going to respond already in two ways one is on the the enforcement which of course we think is also very important but just to make the point that even with EU legislation, even with a top down we rely on national authorities to enforce you mentioned the ESA role I would be interested to see how some people, how members states in particular would feel about a broader ESA role in the area of consumer protection we have not found them always so enthusiastic about roles in other areas but that would be interesting to hear the other thing I came across to me is this idea of the consumer being the cross-border agent I can see kind of three business models here for cross-border banking and this is for you, Jose Manuel one is what we did before the crisis where banks cross-border lend to each other and I think that didn't end so well a better one might be direct lending by banks with subsidiaries inside the countries concerned but now we have a third one from Monique why can't the consumers be the ones that go across borders so I wouldn't be interested to hear your view on which of those models if any of them is the one you think works best or works least I hope that you are not expecting that I go directly into this one but maybe at the end I can answer you of course but first of all thank you for having me here and congratulations to Philipp and you for this excellent new report financial integration I think that it culminates a series which is really excellent if one wants to track the what abouts of financial integration over the years and I think the focus of this panel is quite right because if you look at the indicators that you have published today you see that retail or banking integration lacks the other ones including which has improved of course but it lacks the other ones for really good reasons so let me start by referring to the factors that are behind this in my view which are not simple there are many factors explaining the lack of financial integration but second of course I will focus on a number of factors that impact on the supply of funds cross border and those basically have to do with institutions and the banking union process and the capital markets union but also on the demand side you see digitization and I cannot agree more that this is one of the sources of hope because it's putting a lot of pressure both on legislators but also on institutions in order to raise to the expectations of the new clients the millennials the digital natives but also the digital immigrants like me because I've gotten used to this in a way that I could not even imagine a few years ago so on supply and demand barriers to integration I think the one has to be careful in understanding why we don't have the degree of integration that we would wish and those are not simple to explain there is not a single explanation that would tell us why the situation is such that many banks in Europe still prefer doing business outside Europe than doing it cross border within Europe you see demand factors for instance starting with those relationship banking still is very prominent so people feel more comfortable when the bank is closed especially when it comes to once in a lifetime so to speak decision like a big investment pension plan buying a house and so on and so forth because this is to some extent cultural but is there second cultural factors have to do with attitudes towards debt and savings cultures so there are people that have ingrained in the minds how should they save and to which institutions one should direct their savings and finally I would mention the literacy and in particular these days digital literacy literacy meaning what do you know about your investments what do you know about the function of the deposit guarantee scheme what do you know about the function of know your client of AML the behavior of your bank when you give them the money and on the supply side of course we have plenty or huge differences in national legal and regulatory frameworks notwithstanding the huge progress that has meant the banking union steps given so far and secondly of course there are problems of asymmetric information as for example the lack of cross-border access to effective use of borrowers great information and this goes very much in the direction of the example put by Vitoria here so overcoming the obstacles which are as I said very many requiring my view two big efforts on the supply side in the case of Europe of course completing the banking union and the capital markets union because this would remove a lot of obstacles to cross-border mobility and I will comment later on the consumer mobility because this is a new experience and we have some in that connection and on the demand side of course the European banking industry has to raise to the challenges of digitization which means understanding what is the new standard demanded by clients and not transforming institutions from within it's not just about fintech to me fintech is too narrow a concept fintech is these small companies that have ideas and maybe they grow or not but techfins are another thing is the giants that could become at some point financial agents and it's also about banks wanting to transform themselves into digital companies which is the case of the bank I am working for so on the supply side and the banking union project I think it's quite amazing how far have we come from the decision to create the banking union in June 12 to the creation of the institution of the single supervisor mechanism November 14 so slightly more than two years to the current moment when all efforts have been put in trying to develop a common culture and common standards and the same goes to the single resolution mechanism has created a function in Brussels and there is now an ongoing discussions and we are suspended to the June 2018 meeting of the leaders in order to see to what extent they can agree on some roadmap that would include both the backstop for the single resolution fund and the European deposit system or guarantee system but having said that and this is on the design paper this is quite brilliant I don't know many countries that have gone such a long way in a short period of time one has to aside from creating and moving fast in the right direction as John said at the beginning so setting deadlines for the creation of the backstop and the deposit guarantee scheme and the conditions and the phases towards the creation one has to examine how the different elements of the banking union as it already stands have functions over the period because we have had some stress tests on the banking union and we by now know that the system has a number of glitches that have to be fixed in particular of course as a single rule book some say it's anything but single in the sense that there are many rules that can be interpreted nationally and godplated or whatever you call it but the same directive could be translated in at least 19 ways if not more in the union and this creates a lot of heterogeneity also the state aid communication of the commission of course that allows a city's written now for different solutions to the same banking problem depending on the country where this problem pops up in regards to supervision of course we need to phase out national discussionalities I know that the SSM does a lot in trying to interpret in a homogeneous way different legislations but still there is a lot to do in that context and as regards to the solution there are many things here including of course clarifying how liquidity works both before resolution and at the time of resolution because otherwise you may be lucky as we had the experience with a relatively large bank in Spain last summer but you may not be lucky and that would be a huge blunder so liquidity in resolution is one of the pending issues in liquidation and also of course looking at what elements in the resolution scheme could trigger deposit runs because you want to stabilize the system but you may end up destabilizing it so progress in both completing the banking union but also in fixing the glitches in the banking union as we know it I think the challenges in connection with the main I would say supply factor that is operating in regards to the capital market union which is where I think the FinTech issue fits best of course there is a lot to do in order to foster cross-border investment and the creation of resharing mechanisms this would be good for consumers and users of finance like SMEs because they would have access to more variety and more quantity of funds and also from the point of view of financial stability and stabilization against shocks it would be great the priorities I think set by the European Union are right so promoting the FinTech sector this is easier said than done because you have to reach a balance between the developing or fostering innovation but at the same time ensuring investors and consumers confidence so there are areas of interaction between the new finance and the banking or the capital markets union like crowdfunding or the use of robot advisors or blockchain infrastructure which are hot issues as we speak I would mention also among the many other priorities of course retail investment I think is necessary to stimulate or to convince consumers of course that there are alternatives to deposits and life insurance policies which is basically what they do with the money they have in order for them to participate actively in the capital markets union and also a new thing which is very important sustainable financing sustainable financing means at least two things first of all financing that is inclusive and second financing that is aligned to the protection of the environment and I think these objectives and priorities are quite right but the banking union in isolation would not be a great success unless the capital markets union also develops and for that one current banks in Europe are necessary if only because they are the most prominent actors in place but finally digitization this thing that makes John optimistic and me as well because digitization impacts on the demand for cross-border retail banking consumers want diversity of options they want good prices for their investments they want of course protection for their investments and digital is a way to provide this to provide this it is not for granted because you need to regulate digital in some way and it was mentioned by many before many things remain under the radar screen and I cannot agree more there is a study of EBA of June last year which is in a way frightening because one third of the startups and fintech's questions said okay I think I'm not subject to any regulation meaning including AML KYC which is scary because if this would pop up it would be terrible probably because it means potential problems of financial stability but also for consumer and investment protection you put the money in something that you believe is safe and it is not it is not behaving by any standard nor protected by any guarantee funds and believe me many people think that going and putting money in crowdfunding platforms is as safe and protected as having a deposit in a bank so let me just refer before ending in order to develop this regulation that would permit digital to flourish as we would wish in Europe we have to harmonize national requirements in many respects let me mention examples it was mentioned before digital onboarding you see we benefited a lot from an experience of a German bank it was named back then number 26 and we knew that this bank was onboarding clients remotely from Spain to and I guess from other countries into a German bank so we said ok we are technically absolutely able to do that but we are hitting a different standard from the AML authority so it was great to have this example because we brought it to the AML authority and said I mean these guys are checking on AML know your client and they feel this is safe so why don't you after a few weeks they said ok this is fine so we are now onboarding digitally both in Spain and without Spain clients through this way but it was you know if we standardize this you wouldn't need to say love the AML authority just to convince them that this is as safe as what you are doing currently some of the things of course cyber security this is extremely important I cannot agree more in a digital world whether you are cyber safe with high probability or the confidence of your clients goes away and this is if not the end at least creates a lot of difficulties for the many opportunities that digital opens of course level playing field is one of the issues and maybe we can discuss about this later on because for the same service one should expect the same regulation and this is not really the reality because if you are a bank you have to behave according to rules that are different from those that are subject to fintech so to speak and there is a great challenge for the authorities going forward because the frontiers are blurring not just geographically but also cross sectors so now you think of ecosystems you think of WeChat you enter messaging and then you get offers for travel arrangements there is a payment application there so that means that the frontier between sectors is not clear anymore how are you going to tackle this because it is a huge endeavor in order to understand what to do and I think one of the preconditions to tackle this is to have some high degree of cooperation within authorities at the national and international level because otherwise there would be always kind of shopping for the best regulation and that's the risk going forward so well thank you for this opportunity I think that now is the moment that the accelerator should be should be pushed which will step on the accelerator the journey is there I'm very hopeful I never lose the hope but also my best or my full support to these initiatives and also the initiatives of the commission in particular and for the digital single market as well I mean these combined if we succeed to a great extent I think we'll open a new era for consumers of financial services in Europe. Thank you Jose Manuel I want to give everybody a chance to come back on what they've heard I'm going to give you a kind of general question around which you can ignore if you wish or you can answer in the context of your remarks I mean I'm a commission official so whenever you talk about top down my ears open because you know we are top down people but this top down approach assumes there is such a thing as an EU retail financial actor i.e. there's a retail financial actor across Europe whose commonalities are greater than their differences and that would mean that all these national consumer protection laws don't reflect fundamental preferences they are simply the constructions of perhaps the way the industry has chosen to deliver so it's not so much about protecting customers maybe protecting retail investors as protecting the providers of firms but this all assumes that there is in fact a sort of common EU retail financial actor and I was interested in Victoria long time ago since she spoke now but you know the US has a reputation of having a very mobile labour force it's interesting that positives are sticky when people are able to move around much more in that world so is there any sort of I mean is there a US retail financial actor as well or are they also regionally different so this is just it occurred to me listening to you all that we talk a lot about top down solutions but these solutions will only work if there is this sort of average EU retail actor who can take advantage of this top down approach otherwise we're going to end up with a sort of 15,000 page you know best of best of class type of legislation so may I start with Victoria is there a common US consumer if there is anywhere a common consumer I think US market would be the one China would be also well China would completely different reason though right so I mean the points that came out in the panel for example being able to open actually go to a different state or different area being open account that's a known brainer I don't think anybody perceives us as a friction at all labour mobility I mean it's not complete I mean it's higher than maybe in other areas but I mean common language, common culture, common deposit insurance, common norms, common law, common service all those things I think reinforce the common consumer I do think that this might be an extreme yet again an extreme reference but it might be something to look at just a couple of comments more broadly I cannot disagree with anything that was said those were very insightful comments but just to reiterate a couple of things since I started, since I emphasized switching I want to clarify that switching per se it's a manifestation of a threat but switching per se shouldn't be our goal actually right our goal is the point that I raised about the fact that lack of that threat and lack of any manifestation of switching when the switching is at zero translates to the pricing and you can clearly see that the pricing on the deposits is uncompetitive in the United States so that's the point that we should care about its pricing and exactly how ECB measures its convergence on the pricing element indeed the trends that we should look for in the world where we all acknowledge the importance of tech is where the scale actually will matter and the winners likely to emerge are large institutions or institutions that were ahead of the curve in 1994 so it's it's we would probably see actually bank consolidation as opposed to switching it's most likely to see people staying with their banks but staying for a different reason because they're becoming more competitive and a point which was a very important one and kind of accentuates this information and symmetry that I wanted to just reiterate so he said this when so one element is on the supply side on the banker side when being able to process information and greatly originating the information across market of course make that process less scalable but the point that came out is also on the consumer side be the company be the consumer in that this are one in a lifetime decisions often times and take something I've seen because I deal with a lot of private equity so this is largest transactions companies that have headquarters in London when they do the super large transactions the circumstances about the which they're thinking is what's going to happen if things go wrong who they want to deal with if things go wrong they can raise money anyway they're completely unconstrained at the moment but if things go wrong they want to make sure that the bankers understand the company so if I'm going to phone Italian retail I want to make sure that the large fraction of my lenders and my syndicates will be Italian banks actually and that's the dynamic that you even see on the very highest end and just the final remark that in the way we are emphasizing the technology being a driver of integration actually if you go back in the literature that's about the geographical deregulation and following the integration actually the very reason for the geographical deregulation was technological innovation of the time so indeed this pattern of technological innovation pushing toward integration had been happening in the United States in 1970s and 1990s already in a different context okay Arno on the stickiness of the postings okay but you can take everything then this will be your notes here but not all your notes but some it has always struck me the stability of the deposit base of the bank so digging a bit into it you may find different reasons first of all I think consumers might be satisfied with the suit of services that they are getting and if you look into surveys especially those taken by some consulting companies you see that by and large the confidence of the client is the key say I'm satisfied with the services they give me I rely on them to protect my money and my data my data and this is a very light word so satisfaction with the basics that you are requesting for a bank may be part of the explanation and this is why they are competing safely with big payments companies still let's see with the open banking that we are going into how far can we get here second there may be there is over reliance in the feeling of protection so they say ok even if the institution goes under my money is protected because people have the notion that there is a deposit guarantee scheme out there so why should I care my bank is good nothing happens if it is bad and the authorities would jump in and the third reason of course may be pure ignorance combined with transaction costs so if you rely without any reason on your bank because it has always done the right things and you are not sufficiently literate about what could happen then you stick to the deposit in your bank so there are good reasons and bad reasons to have these stickiness the good ones would be and many banks are understanding this the only way to succeed in the digital world is to put the client at the center understanding the standard he or she are demanding from you and this means using the data you have from the clients which is the amount with outside data plus artificial intelligence plus big data techniques and so on and so forth in order to provide tailor-made services that solve the needs and provide value at it if you do that you enter into a virtual circle and you keep your clients but the bad thing would be that there are many others that are misinformed or they believe that there is some protection or simply a rule of thumb I have always done this because it leads to switch so I'll stay I don't know coming back to the question if there is something like a European common retail actor I think yes and no why I think yes because well now 30 years in retail banking and I've learned from the beginning customers only have three needs it's quite an easy business because they either need to invest money they need money as a consumer loan or mortgage or they need to transfer money it's all about this nothing more so by the way for transferring money which is the payments area we have in the meantime high competitive markets we have very good rules and racks for that and that's probably the reason why Apple and Google and all the other big tech firms have exactly started there for doing their attack about at the banking system why like I said no well the behavior we see today how I fulfill my needs is probably something which is really cultural is cultural based and probably from my point of view it's a result of how you have been grown up what kind of information was available and was usually information you had from your parents maybe sometimes from school and teachers and people around you and now it comes to my out view and I think that will change because with mobile world and we're just at the edge of the mobile revolution which will probably change even more our lives than we can imagine today if you look at that suddenly all information is available everywhere you don't have to ask your parents anymore about a mortgage you can look at a YouTube video and can it explain everything about that we do with web tutorials so you have much more information you can go to a customer protection site you do social media quite well so you get a lot of information from that one so everything is available now and that will change cultural behavior of customers and therefore I think it will help much more forward to something like a European retail financial actor thank you Arno just to react to what Arno just said I agree that the complexity, the current complexity of the retail financial market is not a consequence of consumer demand people like it simple people are more at ease when it's simple so maybe make some sort of introspection and make it simple again it would be also better for the stability of the system maybe another one is about access to social media to get informed but there is also a problem of overload of information and who can I trust of course you can trust the consumer organizations but maybe there are sometimes other elements that are less let's say other actors that are less legitimate just in terms of we do not want to harmonize the consumer let's keep it very clear and also US consumers are not one size fits all there is a huge difference between New York person and from a Montana person for example there are also big differences in consumer protection legislation between California and Ohio there are still I mean there are differences but it's okay it works well the system works well and so what I would like to say top down or bottom up I think we don't have the choice I think that there is enough even if consumers don't need to be harmonized as such but there is enough commonality in the expectations that consumers have to watch a simple a safe an understandable financial system that this can be taken up at the European level and it is not possible can I say so with all the respect for the UK people in this room it's not possible to take national control back again this we are in global markets global markets will take over so it's important to have the most global answer possible we cannot have a global answer so the EU answer is the best possible answer to globalization of our economies and the huge opportunity that we have here and the reason the historic reasons are there we have national systems, national cultures national lobby powers but there is a huge opportunity here to regulate in a more in an area where there is not yet any national tradition which is FinTech so there is really let's say a blank page or more or less a blank page of course I have data protection but that's of course already a European organization so this is a huge opportunity or harmonize rules at least to cater for consumer protection thank you Marik now I have 15 minutes left for questions from the audience well I will bring you in as part of the audience so you can play a dual role here so I'll start with Carol thank you for an interesting panel this panel wants more harmonization which I feel a bit through the different contributions but on the other hand what for example Monique was just saying no, we need more mutual recognition and that's where I'm confused and basically I believe or consumer integration of markets but also for capital markets for investment protection reasons will only work if we have more mutual recognition because our leveling up of harmonization has gone so far like in Miffy 2 like was mentioned this morning that we cannot go further we have to have a new system to reinforce mutual recognition and that's basically the basis of the consumer market gentlemen here, I'll take three and then I'll just move back to you Edouard Vidon from Bonk de France Mr Gonzalez Paramo briefly touched upon the issue of anti-money laundering I would like if possible to hear from the rest of the panel including from the commission to what extent this particular concern makes a difference in the top down of the debates, thank you Thank you and then one more in this round Thank you all for presenting your thoughts and insights Yuma Cabrusta from Suede a regtech firm in London I have a question for Victoria on deposit stickiness do you think there's a difference between countries in the EU on deposit stickiness and if so how could this impact integration I ask this because I agree with you that there is definitely a cultural shift as they are much less loyal and constantly seeking the best deals and better customer service and for example the example that I'm most aware of is in the UK we have the deposit switch guarantee scheme which makes it incredibly easy for customers to switch bank accounts Thank you Now I will start with Monique on mutual recognition but I'll throw it open to anybody else who also wants to answer this question about harmonisation but Monique I didn't think that I asked for mutual recognition so I don't know how you interpreted what I'm saying of course you cannot harmonise 100% because you have natural situations that you need to take into account but once you have a really a strong EU-wide legislative framework then the rest can be of course managed by mutual recognition but that slot should be quite narrow I would say because it's very important to have this commonality if you want an integrated financial market but maybe I've got your question wrong Does anybody else want to come in on that? I think that the risk of mutual recognition is that it consolidates differences so I would say minimum standards plus mutual recognition would work for a while but gold plating wouldn't help in order to create a single market so I would be sceptical to be relaxed about okay mutual recognition will solve all the problems I'm not sure I mean competition among regulations is also playing a role So then I have to react because for me mutual recognition is rather the other way around it's not gold plating but it's in fact going down to the lower common denominator because that would be the pressure that would be put by the industry if you accept mutual recognition from a country that has lower consumer protection why should that be acceptable then bring the national rules down for us mutual recognition is in the long term a race to the bottom Interesting contrast I just needed to say that Yeah, yeah But all this competing in the other direction saying your deposit is ultra protected with me and they could play with it so is this conducive to the creation of a capital market union I hesitate to Okay, I'll come back to anti-money laundering in a minute maybe we go to Victoria and deposit stickiness deposit stickiness So the question was to an opinion about how deposit stickiness might vary across the countries now and this simultaneously will push back a little bit on Monique's point and that the Montana and New York are very different So it's plausible that the French and Italian or Montana and New York's consumers are somehow just of different religions financial religions but as an economist I think that the first order effects are actually more likely to be on on the rational side it comes from age education there is also not to be underestimated the behavioural element that was raised today in the morning about experiences that you had in your country through your families and we have very nice evidence in the academic literature about how those experiences shape our financial preferences through the life at all levels So I think if we take those elements and if you remember those graphs that were shown to us by John actually in the morning that the X axis was actually income per capita rate and this is very much in line with what I'm saying so I think that my answer to that is that I would expect actually quite a lot of variation in the deposit stickiness in the same way that we saw development of financial markets and other dimensions being very different and again in looking for the sources of that variation one that was clearly highlighted in today morning was the economic development of the country for capital income but other elements demographic distribution education distribution and some historical experiences would be important to understand things that historical experiences in New York are very different than historical experience in Montana national competition is also important absolutely yes absolutely which brings us then to anti-money laundering so I'm going to go down to the table on anti-money laundering starting with Arno from my opinion if you look at the KYC process and anti-money laundering there should be only one high standard in the EU and I think that today with the given technologies would be a problem to really have the same standard across the EU but what we see is that we have different national interests behind it sometimes different interpretations so as I said before so the same way I can open up an account for a German customer who is currently allowed to do the same way in Austria even if we share the same language so therefore I think we really need to standardize what Jose just mentioned before with N26 we learned in the beginning we had nearly the same process but we learned that they do something different and that ended up in a larger discussion in Germany even to think about a video legitimation should not be forbidden in future thank God they changed their mind in the authorities so we still have it but as you see we have different solutions now in Europe and I think we really need to harmonize that there should be only one KYC process there can't be two worlds of anti-money laundering for them and well they cannot agree more on this one but if you allow me now that I have the use of my turn you asked at the beginning what kind of business models for banks you can envisage going forward let me say because this is a very complex question we could spend the rest of the day talking about this but one is imagine that there is a bank that thinks okay this digital thing will take on the business but very progressively, slowly so you have time to adapt to it and on top of it I don't have enough reserves to invest in what I need to invest if I would like to change the bank right away well I think the destiny of these kind of banks the banks that have this reflection is slowly or quickly becoming utilities utilities with this open banking standard there would be a platform on which third parties will operate payments and provide services so you would stick with less brilliant part of the business losing contact with the clients and with bigger margins I don't know what size or what percentage of the industry will go that way second option would be okay no you have a vision that the future is digital so bank which is a knowledge company by definition should become a digital company but then you have to abide by this diagnosis which means identifying your competitors going forward which are not going to be the banks that are sitting with you but most probably tech companies be they google be they apple be the facebook be the giants at some point they will compete with you they are already competing as on segments you need to have the money to invest in systems and in skills that are very scarce in the market so now we don't have any more accountants or lawyers we hire systems engineers we hire experts in customer experience we hire experts in big data and so on and you need to change the organization from within which is a very difficult path because changing mindset of the people making them understand what is the role in the new company is not an easy matter and how you get there you compete with fintechs but you may collaborate with them either because you buy them in order to fertilize your business from within or you invest in ventures or you use the incubator approach so you buy something to make it grow with internal talent as well in that way and finally more ambitious banks and this is a big question mark would pretend perhaps going forward to become an ecosystem a financial ecosystem or becoming part of a wider ecosystem and again WeChat in China is one example of where you could end up so contemplating these scenarios is very important because the decisions to be taken today in order to get to one of these scenarios is not trivial very hard decisions to be taken but I'm sure that a large part of the European banking system would become a utility which means huge mergers because low margins call for big size otherwise you simply disappear and the others we will see but think of the challenges for you supervisors and regulators or regulators and supervisors in your case as it regards financial stability how to ensure financial stability in an ecosystem world consumer protection again an investor protection integrity of the system and then how do you do ML KYC in a context where you have an institution not even a bank offering financial and non-financial services cross border with different authorities worldwide so integrity and competition efficiency the big winner short term means the consumer long term we will see depends on the protection that they have thank you I mean I will just come back on this AML because I think we have to distinguish between AML for the future in digital space which is going to be itself a particular challenge but also AML today which is a national responsibility under European legislation however we have within legislation the possibility to share information not the obligation I would add the possibility to share information I think recent developments have kind of led us to think a little bit more about how we can strengthen the center around AML it's not necessary to centralize but I think there are coordination mechanisms across member states but they're not as strong as we in the commission think they might be so we want to explore this is for today I'm not talking about digital I'm talking about today's world we want to look at ways in which we can strengthen coordination among national authorities because that's one area I think we're having radical differences between standards and implementation of common standards it doesn't really work out if you want to have a single market now I have three minutes left I'm going to allow one more question one more maybe my question is very simple because I need a lot of management in my job as an investor and I have seen close to none telling me that it's a good strategy to go in another country to opening a new country in the euro area and you explained the reasons I think a bit but it's striking that we have so many European regulations and so little will to develop outside domestic country and what do you think can make it change what is the critical factor to make it change is it a series of small actions or you could imagine something big maybe which would really change the deal for you to think about expanding in another European country that's a very short question which would take a very long time to answer so okay I give you each two sentences then so the first sentence is if you look today when you have pan-European banks that have always been pan-European acquisitions not mergers so you have implemented different technology solutions and yes tech will be the driver if we really think about what Jose has just said if we have platforms and ecosystems with APIs then probably you can do cross-border business very quickly first fixing the glitches in the banking union, second completing the roadmap towards completing the banking union and the capital markets union and third regulating right digital so meaning completing the single digital market at this point I'm going to start repeating the points but it seems like tech team came out here it's more than two sentences already but emphasis on tech it seems like an important issue just to reiterate and in order not to repeat what the others have said just to say also look at the other aspect which is make it possible for consumers to go into the other country there are many many situations where that might be just the most interesting because you are maybe a German citizen living in Belgium or in France and you want to go to a German provider just find this possibility and you de-fragment the market okay and now I have one minute or so left to summarize all of this so I'm not going to but I'm just very conscious when I come to conferences like this that we are part of Monique's 10% of people who tend to cross-border and therefore we may not be representative of the 90% who maybe cross-border once a year when they go on holidays and therefore have a less exposure to the world that we live in that's why I asked the question in the beginning is there such a thing as certainly here you can see an EU retail financial participant but are we representative of the the greater majority 15% of border regions okay I suggest probably are so that's my answer to that I mean then on based this discussion I think we do need to go top down because I think I take Monique's point that bottom up probably won't deliver asking Member States to coordinate themselves I tried it with Clearing and Settlement 15 years ago and we're still here trying to get it but harmonising national systems of consumer protection is not a very easy task so I think it will depend on whether or not these commonalities are strong enough whether these differences really reflect fundamental preferences or not and if they don't then we're going to have to sort of identify what these commonalities are and deliver that in the EU legislation the problem with this goes back to your point Monique that as far as I can see the last 20 years of financial services provision has been about tailoring it's been about trying to provide the client with exactly what the client wants what you seem to be saying to me at the retail level that's not really what the client wants the client wants perhaps simpler standard products and that's not the way the market has been thinking at least up until now I was interested in this common US law and common frameworks that maybe are more important than some more important than others we in Europe don't have many of those things we don't have common legal frameworks we don't have common judiciary we do however have the possibility of having a common deposit insurance scheme I think this may be one of the things that if we can get it in place will help a lot digital I think offers this great opportunity I think we can use it I think it does take all these natural barriers which we used to stop the conversation about takes them out but there as I said earlier I mean we need to sort of legislate to now these digital services to acquire scale but the same time we have to regulate them in a way that doesn't leave the consumer less protected than they would be otherwise so with that I'd like to thank Monique Victoria, Jose Manuel and Arno for great interventions and question answering and I think I've landed on time so I'll stop there thank you very much