European banks must speed up their investments in blockchain technology in order to recapture their own capital markets from American financial institutions, global consulting firm Bain & Company warned in a report released on September 3.
A day later, International Monetary Fund (IMF) chief Christine Lagarde told the European Parliament’s Economic and Monetary Affairs Committee that with bank profits low and FinTech firms gobbling up investments, EU central banks must welcome new technologies—including digital currencies—in order to remain competitive.
Taken together, the two offer a clear message to European bankers and regulators: get moving on blockchain or get run over.
“Financial services executives expect machine learning, AI, and blockchain to have the greatest impact by 2025,” Bain noted in its report, “How Europe’s Banks Can Recapture the Capital Markets Business at Home.”
Bain said it “expects robotic process automation, digitization, and blockchain to produce the largest effects in credit, commodities, and rates.” It pointed to sovereign bond trading, derivatives, and options on swaps as some of the areas likely to be most impacted.
High volume, repetitive tasks on which many blockchain FinTech firms are already working are ripe for early investment, Bain added. Among these, it highlighted “know your customer” (KYC) data gathering, compliance reporting, and document collection.
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Lagarde’s comments, meanwhile, came during an appearance before the European Parliament, which will soon vote on making her president of the European Central Bank.
With Facebook’s controversial Libra cryptocurrency sounding alarms Europe and around the globe, digital currencies are a hot topic among EU bankers and regulators. More than a few are fairly negative. China, on the other hand, is moving to create its own central bank-issued digital currency soon, although probably not this year.
Lagarde’s interest is largely in central bank-issued digital currencies and settlement coins like JPMorgan’s JPM Coin and Ripple, social trading and brokerage firm eToro’s senior market analyst Mati Greenspan told Modern Consensus in July, when her nomination was announced.
“Lagarde is quite forward thinking and she’s familiar with digital assets,” he said. “I think she’d be a good figurehead and role model to lead the European side of oversight.”
Aside from poor profitability, Lagarde remarked to European lawmakers on the growing investment in FinTech and other non-banking firms as a reason for EU regulators and central bankers to be open to new technologies.
For one thing, blockchain and digital assets are already coming fast, she said. Half of the financing flowing to European companies is already coming from non-banks, Lagarde noted. FinTechs “now receive around a quarter of the financial service industry’s venture and startup funding,” she added.
“In this environment, central banks and supervisors need to ensure the safety of the financial sector, but also to be open to the opportunities provided by change,” argued Lagarde. “In the case of new technologies—including digital currencies—that means being alert to risks in terms of financial stability, privacy, or criminal activities, and ensuring appropriate regulation is in place to steer technology towards the public good.”
But, she added, “it also means recognizing the wider social benefits from innovation and allowing them space to develop.”