With the emerging trends of cryptobanking, the interdependencies between banks, FinTechs and BigTechs, and the data economies positioning clients as the biggest beneficiaries of innovation, Ole Matthiessen, Global Head of Cash Management at Deutsche Bank Corporate Bank opines on the role of regulation in driving banking transformation
The recent announcement that the first two Swiss “crypto banks” received provisional banking licensesi was hardly surprising for our industry. After all, crypto technology has been creeping into banks for some time. For me, however, this was not insignificant. This was yet another key piece of evidence that confirms the financial industry, and the wider economy, is on the cusp of the biggest technological shift in recent memory.
Such a technological shift is not only driven by developments in the cryptoasset market, but also through the emerging presence of FinTech and BigTech firms in the financial industry, as well as the continued evolution and growth of the data economy. Amongst all three trends, there will be one decisive factor; which direction will regulators choose to take? This question is at the core of our new report, Regulation Driving Banking Transformation.
For cryptoassets, if the issues such as investor protection, cyber threats, and others, can be solved, I can see where they have the potential to foster greater financial inclusion, particularly in emerging markets. As traditional capital-raising methods exclude many small firms, crypto-assets offer an enticing alternative to traditional asset classes for as a wider range of potential investors. Some of the largest stock exchanges have, for some time, been looking into tokenised asset opportunities. Of course, there are big-picture worries for financial stability if cryptoassets become popular payment tools. One concern is how policymakers will control the economy with worries that central banks may lose some control over monetary policy and money supply mechanisms.
I am, however, more positive that these issues will be solved. If cryptoassets do become widespread one day, it is likely that central banks themselves will issue their own version of these assets, making monetary policy easier to implement. The US, China, UK and Canada are among those countries that have already discussed this possibility. Ultimately, with the end consumer in the driving seat of treasury transformation, demanding cash-less, digital and mobile payment methods that go beyond traditional regional constraints, it seems the target state is already being defined. However, despite the potential benefits, it appears unlikely we will see a widespread uptake of cryptoassets any time soon without a marked change in regulatory direction, particularly when it comes to rule alignment across jurisdictions and market participants.