21 March 2023

Financial Services: A Level Playing Field Required – Gasós (Podcast)

Finance Malta


Finance Malta is a non-profit public-private initiative set up to promote Malta as an international financial centre, both within, as well as outside Malta. It brings together, and harnesses, the resources of the industry and government, to ensure Malta maintains a modern and effective legal, regulatory, and fiscal framework in which the financial services sector can continue to grow and prosper. The Board of Governors, together with the founding associations: The Malta Funds Asset Servicing Association, the Malta Bankers Association, the Malta Insurance Association, the Association of Insurance Brokers, the Malta Insurance Managers Association, the Institute of Financial Services Practitioners; its members and staff are all committed to promote Malta as an innovative international.
The question of a level playing field in regulation is very important, and is now one of the major constraints to business in the financial services sector, according to Gonzalo Gasós.
Malta Finance and Banking
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The question of a level playing field in regulation is very important, and is now one of the major constraints to business in the financial services sector, according to Gonzalo Gasós.


Photo - Mr. Gonzalo Gasós, Senior Director of Prudential Policy and Supervision, European Banking Federation (EBF)

Mr Gasós is the senior director of prudential policy and supervision at the European Banking Federation, and was interviewed by FinanceMalta during his visit to Malta to address the annual conference.

Asked about the difference between banks and FinTech operators, he did not mince his words: "We feel that the same activity and the same risk should be subject to the same regulation and supervision, which is not the case in Europe today. It all comes down to whether the player is acting under the label of a bank or lies out of the perimeter of regulation."

It is not a losing battle, however, and the EBF's voice is being heard, although he admitted that putting change into practice it is a bit more complex.

"The structure of supervision and regulation was designed a long time ago for banks - and not for non-banking institutions. ... We know that the Financial Stability Board is taking steps but the market moves faster than the capacity of the regulatory community to react," he said.

"You cannot change the past, but you can at least design the future where there is equivalent supervision and regulation, and a lot of transparency and full understanding by the clients. We should not wait too long. We should speed up the process and be very attentive because the market is moving very fast."

Mr Gasós also spoke about the comparatively slow growth of the European financial sector which has for some time been held back by the extent of available bank funding. The solution, in the view of the EBF, is to unlock the capacity of European investments to finance European enterprises. He explained that although there have been various initiatives since the global financial crisis to create a Capital Markets Union, there were many intermediate steps which need to be taken before the balance sheets of the European banking sector - the largest in the world - could be unlocked.

"There is a lot of financial power kept in the balance sheets of European banks and to unlock that capacity we would need to revive the securitisation market in Europe," he said adding that the first thing to overcome was the negative stigma associated with the products which were at the core of financial crisis.

"But it was the wrong type of securitisation placed with the wrong clients," he said.

The road map for the Capital Markers Union is based on a paper drawn up in 2014 by the ECB and the Bank of England in 2014, and it lays out how to revive the securitisation market - targeted at the major holders of securitisation: banks.

Figures can help to demonstrate the extent of the problem: the EU had ?800 billion in securitisation products before the crisis but that has now gone down to just ?250 billion. Over the same period, the US started from around the same level as the EU but now boasts around ?3 trillion.

The motivation for change is no different to that of any market: it has to make economic sense for banks: "Fine-tuning of regulation can be done during the final stages of the EU's banking package in 2023, but to make it economically efficient for banks, there has to be capital neutrality. This means that for a bank to be interested, capital consumption has to be no higher than if it kept the assets to maturity on the balance sheet."

Listen to the wide-ranging interview which touches on controversial issues in data protection, disruptors and stability threats, cryptocurrencies and the digital euro in our audio podcast here.

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