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Rules for banks and nonbanks must be harmonized — senior European bankers

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Rules for banks and nonbanks must be harmonized — senior European bankers

Current financial regulation creates an uneven playing field between banks and nonbank financial institutions, which often offer similar services but are not subjected to the same level of scrutiny by sector watchdogs, Deutsche Bank AG CEO Christian Sewing and Banco Santander SA Executive Chair Ana Botín said at a Sept. 8 conference.

Restrictive regulation prevents European banks from participating in certain businesses, Sewing said in a speech at the Handelsblatt Banking Summit 2021. But that does not mean those activities will disappear — they will simply migrate to other parts of the financial system, the CEO said.

"In the face of persistently negative interest rates, institutional investors are chasing higher returns and are pushing into credit markets that were traditionally the preserve of banks. Even insurers have suddenly become very active in leveraged loans," Sewing said.

"Same business, same regulation: that must be the principle," he said. A lack of joined-up regulation promotes neither financial stability nor fair competition, Sewing added.

At a time when most services have moved to digital platforms, banks are no longer the only gatekeepers of the financial system and, unlike during the financial crisis a decade ago, they are not the ones inviting risk into the system, Botín said in an interview at the same conference. She called on global regulators such as the Basel Committee for Banking Supervision and the European Commission to harmonize rules for banks and nonbanks, as well as across jurisdictions.

"It's very important that the system has some kind of coherence across it," she said.

As soon as Santander acquired financial technology company Ebury Partners UK Ltd., it had to change the way it managed it, because the regulation was "very different" depending on whether the owner was Santander or somebody else, Botín said. Ebury provides international payments, white-label banking and foreign-exchange risk management, among other services.

The European Payment Service Directive 2, or PSD2, is also causing an imbalance in the regulation of banks and nonbanks, according to Botín. It requires banks to share customer data with other companies, but does not grant banks the same right to other companies' customer data.

"What we are asking is that other platforms open up their data to us, so we can offer you a cheaper mortgage or a cheaper consumer loan. I think this is all very rational," Botin said.

In July, the Financial Stability Board, which makes recommendations about the global financial system, warned of risks as COVID-19 has revealed vulnerabilities in parts of the nonbank financial institution sector. It called for international coordination in tightening rules for shadow banks in order "to avoid regulatory arbitrage and market fragmentation given the cross-border activities of many entities in this sector."