Cybersecurity

Why Cybersecurity is a Concern for Financial Regulators

In March 2017, the German Federal Financial Supervisory Authority (BaFin) held their third conference covering IT supervision for banks. At the conference in Bonn, BaFin President Felix Hufeld told the more than 400 attendees that cyber-risks are one of the most substantial facing the German financial sector. Cybersecurity risks are indeed immense, as banks are susceptible to theft, data breaches and denial of service attacks. In a recent study from KPMG, 38% of responding German companies reported to having been a victim of cyber-crime in the past two years. One in twenty reported losses of more than 1 million euros due to cyber-attacks.

The monetary costs for businesses are obvious. However, for the financial sector the costs can be farther reaching. Since financial institutions, public and private, play a critical economic function, the fallout from a cyberattack on an institution can trickle down into the rest of the economy and society. For this reason, cybersecurity has become a significant concern for financial regulators around the world. At the 2017 Frankfurt Finance Summit, Felix Hufeld will join Dr. Andreas Dombret, Executive Board Member of the Deutsche Bundesbank, for a panel discussion on the challenges of cybersecurity and innovation.

At the March conference on IT security, BaFin introduced new additions that will be made to the Minimum Requirements for Risk Management (MaRisk) concerning IT Security. The German regulator worked in cooperation with Deutsche Bundesbank on the forthcoming guidelines, called Bank Supervision Requirements for IT (BAIT), which are expected for the middle of 2017. BAIT aims to help banks understand the supervisory expectations regarding cybersecurity strategy. The guidelines will place new pressure on management boards to assume responsibility for strategically managing cyber-risks. At an event in 2016, Dr. Andreas Dombret referenced these responsibilities, explaining, “We therefore demand that banks clarify what is at stake and how the risks are supposed to be governed. This is called a cyber strategy, and every bank is required to have a convincing one.”

Not just German regulators are demanding higher cybersecurity standards from the financial sector. The New York State Department of Financial Services (DFS) has outlined new cybersecurity requirements for financial services companies which came into effect in March 2017. Amongst other items, the new regulations establish requirements for formal cybersecurity programs, incident reporting, and data encryption. Additionally, the New York regulators place the ultimate responsibility for cybersecurity with management boards and requires the employment of a Chief Information Security Officer charged with overseeing and implementing the cybersecurity program and enforcing its policies. The USA’s federal regulators are following suit and currently drafting regulations that would place stricter standards on sector-critical firms.

In January 2017, Jens Weidmann, President of the Deutsche Bundesbank, clearly explained that increasing reliance of market infrastructures on digital technologies has made the global financial system even more vulnerable to cyber-risks. Weidmann maintains that “The damage unleashed by successful attacks goes beyond the financial loss incurred. Cyber-attacks can potentially undermine peoples’ trust in the financial system.” This trust is critical to banks and financial services ability to serve their important role in society. Thus, it is understandable that cybersecurity falls within the purview of financial regulators and for them to set clear requirements, just as they would capital requirements, for example. Weidmann concluded by saying, “to avoid jeopardising the positive impact of digital finance, it will be crucial to address these risks and for banks to manage their IT and cyber risks with as much diligence as they do their traditional banking risks.”

These regulatory questions regarding cybersecurity will be addressed at the seventh Frankfurt Finance Summit, titled Europe Reloaded – Challenges for the Financial Sector. Felix Hufeld and Dr. Andreas Dombret will be joined by panel moderator and international economist Cornelia Meyer to discuss the challenges of cybersecurity and innovation.

Brexit Frankfurt Finance Summit

After Brexit, financial centres confronted with a new reality

Just six weeks before the Brexit Referendum, in his keynote at the 2016 Frankfurt Finance Summit, Dr. Wolfgang Schäuble, German Federal Finance Minister, described this as possibly the biggest political decision in a generation. Schäuble stated that “I think both the EU and the UK are better served with Britain remaining,” and later posited that “Great Britain’s relationship with Europe should not be defined by splendid isolation, but by splendid integration.” Last year’s nightmare became this year’s reality. Article was triggered on March 29, 2017, and official negotiations are underway and on the clock. This year’s Summit, titled Europe Reloaded – Challenges for the Financial Sector, will seek to encourage productive dialogue on how Europe can move forward after Brexit.

With the formal declaration by the United Kingdom’s government to withdraw from the European Union, Brexit has now entered a new and decisive phase. Hubertus Väth, Managing Director of Frankfurt Main Finance e.V. states, “The beginning of the exit negotiations between the United Kingdom and the European Union are imminent. The negotiating parties are entering uncharted territory. Of the utmost importance, will be standing fast to the maxim that maintaining stability in the financial system must take precedence over individual interests. Both parties must strike the delicate balance between averting a cliff-edge scenario while still maintaining the recognizable appeal of membership in the EU.”

The United Kingdom’s withdraw from the EU is regrettable. The anticipated loss of rights, including passporting, will create a dramatic shift of banking and financial services out of London. While bad for London, and Europe in general, European financial centres are poised to profit from this exodus. “The Financial Centre Frankfurt is exceptionally situated to assume a position functioning as a bridge for London into the EU,” explains Väth, “As the home of the European Central Bank, the Europe’s insurance supervisory mechanism, Europe’s largest stock exchange and the largest internet hub for data traffic, Frankfurt offers best infrastructure for credit institutions and financial services providers active across Europe. Frankfurt’s TechQuartier and dynamic, growing FinTech ecosystem have been distinguished by the Federal Government with the Financial Centre Frankfurt’s appointment as Germany’s Digital Hub for the finance industry. Therefore, we still estimate that around 10,000 jobs will be relocated to Frankfurt in the coming years.”

These estimates of jobs moving to Frankfurt are not empty estimations. Just last week, Väth reported in the Financial Times that Frankfurt already has more than an indication from three of the five largest US banks, as well as a Swiss, Japanese, Korean and Indian bank that they have either decided to relocate operations to Frankfurt or are in the process of doing so. Clearly, Frankfurt is in the pole position to benefit from Brexit, but certainly not alone amongst European financial centres. Each financial centre is uniquely equipped to accept certain functions and business units. For example, Luxembourg and Dublin are ahead with asset managers. Warsaw’s affordable and well trained talent pool should result in an influx of back office functions. It seems certain that operations will move out of the City of London, but will be fragmented across European financial centres.

However, major questions still linger. What will the new financial centre landscape look like? Will Euro Clearing be forced under ECB jurisdiction? If so, who will win this 500 billion EUR market? Will the European Banking Authority join the other European regulatory functions in Frankfurt? The future of Europe and its financial centres will be the topic of the 2017 Frankfurt Finance Summit’s first keynote and panel discussion.

cybersecurity

Digitalization Presents New Cybersecurity Challenges for Financial Sector

As our economy embraces digitalization and countless connected devices accompany us in our professional and private lives, cybersecurity has become a key challenge, especially for the financial sector. Thus, it is appropriate that a major topic at this year’s Frankfurt Finance Summit, titled Europe Reloaded – Challenges for the Financial Sector, will focus on cybersecurity and innovation. Data breaches and cyberattacks can potentially result in millions in losses and severely damage brands. In February 2016, cyber criminals attempted to steal $951 million from the Bangladesh Bank and succeeded in absconding with $101 million. Beginning in 2015, Kaspersky Labs reported that the Carbanak group had infected computers in more than 100 financial institutions, allowing them to manipulate account balances, transfers and remotely control ATM machines resulting in the theft of up to $1 billion (Kaspersky Labs CEO, Eugene Kaspersky will be delivering a keynote at this year’s Frankfurt Finance Summit). These cyberattacks on organisations and governments are growing rapidly in both complexity and frequency, challenging them to re-evaluate their approach to safeguarding against cybersecurity threats.

Theft of funds are not the only tangible costs of an attack. Data breaches can endanger customer data, trade secrets, industrial equipment and even personnel. Cybersecurity Ventures’ analysts estimate that Cyber Crime cost $3 trillion in 2015 worldwide and expect these costs to rise to $6 trillion by 2021. Considering these massive costs, addressing these threats has become regular discussion in board rooms across the world. The same Cybersecurity Ventures’ analysts report that $120 billion will be spent in 2017 on cybersecurity products and services and expect this spending to exceed $1 trillion cumulatively from 2017 to 2021. Due to increasingly complex attacks and levels of interconnectivity of business processes, just a strong castle wall no longer offers the necessary protection.

Cameron Brown (@AnalyticalCyber), a trusted cyber defense advisor and information security strategist who consults for the risk advisory practice of EY across Germany, Austria and Switzerland. He explains that there is a paradigm shift occurring within corporations as “security incidents and data breaches are literally decimating consumer trust, irreparably damaging brands, and causing stocks to plummet overnight.” Companies who recognize this new reality are making massive investments in Security Operations Centres and Threat Intelligence to enhance early detection and proactively identify vulnerabilities. Brown observes that “boards are increasingly receptive to adopting holistic strategies to secure their informational assets. In-house security teams are being equipped with tools to enable greater visibility across the environment and foster more effective collaboration when responding to security incidents globally.” Per Brown, the risks associated with third party providers are recognized as a significant source of vulnerability. He adds that “organizations seeking to maintain their competitive edge in the market are investing in technology to detect and deflect external threats and developing the resiliency of their people to withstand and eradicate threats that have moved inside the enterprise.”

Cybersecurity is especially relevant for FinTech

Considering the tens of millions of transactions, trades, and sensitive data transferred every day, the cybersecurity challenges for the financial sector are immense. At the same time, digitalization is occurring at an unprecedented pace. Reconciling cybersecurity concerns with new, innovative applications and systems can be an especially formidable undertaking. Utilizing third-party applications and services is a common practice and these integrations can introduce potential vulnerabilities into an environment. These concerns are particularly relevant for FinTech companies whose applications are often connected through banks’ APIs. Brown says, “some players are contentiously baking robust security into their solutions, whilst others are falling short of the mark. The development lifecycle is aggressive, expansive, and highly dynamic.” The senior advisor asserts that many products are ill-equipped to withstand targeted and persistent cyberattacks; and maintains that “innovators and entrepreneurs must reprioritise security to avoid short-sighted pitfalls associated with rushing to market without sufficient product testing and evaluation.”

However, some FinTechs are also contributing to improving cybersecurity, like 2016 Golden Garage winner, WebID Solutions, who facilitates secure online-identification. Brown notes that “ongoing and proactive dialogues between entrepreneurs and regulators are critical for cross-pollinating awareness and engendering understanding of the technologies which underpin FinTech solutions and give rise to security vulnerabilities.” The cybersecurity expert explains that this collaboration also informs the development of measured regulatory frameworks which serve to enhance rather than thwart creativity and resourcefulness. “Open channels of communication can also benefit entrepreneurs by assisting them to forestall issues concerning privacy, consumer protection and the impact of trans-border complexities,” explains Brown. He strongly urges that before going to market, FinTech firms perform thorough risk assessments of their data protection needs, with emphasis on confirming where data resides and charting the course through which their data flows, including third-party facilities.

Staff and business units act as the first line of cybersecurity defence

As corporations invest in technology and human capital to mitigate and minimize potential risks, it is important to communicate with employees on how they can make a difference. Cameron Brown explains that a fundamental hurdle many organisations face is raising security awareness among staff and leadership. “The CIO is the lynchpin who must help the organization to navigate the threat landscape and leverage data movement to maximise revenue. To accomplish this task, CIOs need a multifaceted skillset to ingest operational, legal, regulatory and compliance issues which impact both IT and business environments. CIOs must predict threats and champion the implementation of new risk models.” In organisations, large and small, educating staff on potential dangers they may encounter daily could help prevent costly intrusions. Brown adds that cyber security is a whole-of-business issue which mandates a whole-of-business approach. He emphasises that “security awareness and training initiatives for staff, including exercising business continuity plans, are vital components to empower staff and business units, who are the first line of defence.”

At this year’s Frankfurt Finance Summit, the second panel and keynote by Eugene Kaspersky will focus on Cybersecurity and Innovation. Joining Kaspersky on the panel chaired by international economist Cornelia Meyer will be Felix Hufeld, President of BaFin, Andreas Dombret, Deutsche Bundesbank Executive Board Member, and Daniel Domscheit-Berg, author and former WikiLeaks spokesperson.

 

Center for Financial Studies

Financial Regulation in Europe – just science or also an art?

The fact that financial regulation is a science would hardly be argued by anyone. But looking at financial regulation as an art – this connection is not easy.

The address given by the President of the Federal Financial Supervisory Authority (BaFin), Felix Hufeld, on March 16, focused precisely on the question of whether financial regulation is a science or an art. More precisely, which part of regulatory processes are considered as science and which are considered an art. Hufeld’s address was hosted by the Center for Financial Studies (CFS) at the Financial Centre Frankfurt’s Goethe Universität, whose lecture series is well known for its top-class speakers.

Hufeld described the basic concepts, models, and quantitative methods of regulation as scientific, but, further on in his lecture, he shifted focus to shed light on the parts of regulation that transcend these scientific elements, which Hufeld designated as art. These questions and decisions which cannot be answered by mathematical models, which necessitate consideration between different regulatory objectives, which can also intersect in a tense relationship. “In short: questions that rely primarily on one’s personal judgment,” as Felix Hufeld summarizes. These difficulties are exacerbated by regulation moving towards a context of global development, by the continuous process of Europeanisation, the dynamism of the markets, as well as the fundamental changes brought by digitalisation.

Using four examples, Hufeld dove deeper into this understanding of regulation as an art: financial stability vs. profitability, risk sensitivity vs. procyclicality, principle-based vs. rule-based regulation, and consumer protection vs. credit institutions’ capacity to act. These and other areas of tension require individual, creative and pragmatic decisions from regulators based on principles of stability and continuity, which must be balanced by the tension between contradictory regulatory objectives and dynamic developments. At the end of this process, the goal of regulatory authorities is to realize a sustainable, viable order in financial markets and to avoid the vicious cycle of crisis to regulation to deregulation and back to crisis.

The full text of Felix Hufeld’s lecture can be found here (German).

Frankfurt Stock Exchange Celebrates Equity Day!

Frankfurt Main Finance Member, Deutsche Börse, has announced the third Equity Day to be held on 16 March. Germany’s leading stock exchange operator and the participating banks are hosting this event to raise public awareness of the importance of equities as a retirement-saving instrument. The traditional bell ringing will mark this day’s start of trading on the Frankfurt Stock Exchange.

Private investors can purchase DAX equities and DAX ETFs free of charge.

Michael Krogmann, member of the Management Board of the Frankfurt Stock Exchange said, “We consider it particularly important to impart financial knowledge to the public at large and to educate people about the importance of the stock exchange and thus equities trading as well. Equities turn private individuals into co-owners of companies. This kind of investment enables young enterprises to put new business ideas into practice and secures growth financing for major companies, ultimately also securing jobs. Stocks and shares have been crucial to economic and social progress for centuries – and they can also make a very important contribution to retirement saving.”

The Equity Day will feature fee-free purchases of all DAX equities and nine DAX exchange-traded funds (ETFs) to private investors placing an order volume of €1,000 or more via the Börse Frankfurt trading venue with any of the participating brokers. Deutsche Börse and brokers 1822direkt, Augsburger Aktienbank, comdirect, Consorsbank, DKB Deutsche Kreditbank, ING-DiBa and maxblue are waiving the normal fees.

Deutsche Börse offers all year round free introductory lectures and gallery visits to the Frankfurt trading hall to support everyone understand the role of stock exchange trading. Up to 40,000 visitors from around the world take advantage of this offer each year. Deutsche Börse also offers the Internet portal at www.boerse-frankfurt.de, which is specially designed to meet private investor needs. The website offers detailed explanations of share trading for beginners, the stock exchange’s role in a national economy, and how exchange trading works today. Deutsche Börse offers in-depth training via its own Capital Markets Academy. Interested parties can attend basic seminars on the financial market or stock exchange products at the academy.

Finanzplatztag 2017 – building instead of burning bridges

On March 7-8, 2017, WM Gruppe, a member of Frankfurt Main Finance and publisher of Börsen-Zeitung, hosted the tenth Finanzplatztag (Financial Centre Day) at the IHK Frankfurt in the Frankfurt Stock Exchange. Frankfurt Main Finance was well represented at Finanzplatztag, with members delivering keynotes and participating in discussions throughout the event. Among the member organizations represented were Deutsche Börse, Helaba, the State of Hessen, and, of course, WM Gruppe.

Hubertus Väth, Managing Director of Frankfurt Main Finance, moderated the panel Building Instead of Burning Bridges – the new landscape for EU financial centres which featured Arnaud de Bresson, CEO of Paris Europlace, Mark Hoban, Chairman of the International Regulatory Strategy Group, Pat Lardner, CEO of the Irish Fund Association, and Tom Theobald, Deputy CEO of Luxembourg for Finance. The representative of Europe’s leading financial centres explored what changes could be expected as financial services leave London in the wake of Brexit. While differing on some smaller points, the panelists were able to agree on the importance of maintaining stability in Europe. A significant contributor to this stability, of course, will be London maintaining its role as an important, global financial centre. The Eurozone’s financial centres will need to maintain a strong network to remain competitive with other global centres like Singapore and New York City. Building a bridge from the Eurozone to London will play a critical role for minimizing the effects of Brexit and preserving stability.

Dr. Gertrud R. Traud, Chief Economist with Helaba, spoke about structural change and Frankfurt’s position to profit from Brexit, giving an overview Frankfurt’s position as a financial centre compared to its main competitors.  Traud explained why Frankfurt’s special character sets it in the top position on the continent and introduced the findings of the recent Financial Centre Focus. The Helaba study, Brexit – Let’s go Frankfurt, shows that Frankfurt ranks in the top position on several factors, including a world-class infrastructure, high quality of life and the stability and strength of the German economy.

Following a keynote address from Deutsche Börse CEO Carsten Kengeter, Claus Döring, Editor-in-Chief at Börsen-Zeitung, took the stage to lead the podium discussion, Consequences of Brexit for the Financial Centre Frankfurt. The discussion featured Hubertus Väth, Hauke Stars, Deutsche Börse Executive Board Member, and Michael Reuther, Commerzbank Executive Board Member. Väth opened the discussion, explaining he still stands with his estimate that around 10,000 jobs will be moved to Frankfurt from London over the next five years. Given Frankfurt’s numerous locational advantages, Väth reported that there has been extensive interest from financial services and banks and that he expects to announcements to be made later in the month. While he was not in the position to provide names, he stated that, “3 of the 5 largest American banks have made decided to move to the Financial Centre Frankfurt.” Väth reiterated that Frankfurt remains “in the pole position” and remains the best alternative for banks leaving the United Kingdom. Per Väth, announcements and resettlements will happen in three waves, beginning with large investment banks, followed by commercial banks and asset managers.

Frankfurt Main Finance Executive Committee Member, Hauke Stars, expounded on Väth’s comments, noting Frankfurt’s deep talent pool and role as a regulatory hub amongst its many attractive factors. Stars explained that Frankfurt is not just an attractive location for large financial services firms, but also for small FinTech start-ups. Deutsche Börse has been an active supporter of the Frankfurt FinTech ecosystem, especially with their FinTech Hub. To this Stars hinted at expanded activities to continue advancing this important segment which will be announced in the coming weeks.

The first day of the event closed with an address from Tarek Al-Wazir, the Hessian Minister for Economics, Energy, Transport, Urban and Regional Development and Frankfurt Main Finance Executive Committee Member. Al-Wazir reflected on the events of 2016 and the ten years since the first Finanzplatztag. Stating that Brexit was very unfortunate and undesired, Al-Wazir explained that we must do what is best for the Financial Centre and the goal is keep a hand extended to the United Kingdom, and reemphasized that we must build bridges rather than tear them down. Like many of the speakers, Al-Wazir concluded the day with a message that conveyed the importance of Frankfurt and Europe’s openness in contributing to the global economy. Indeed, building bridges with the entire world, and not just the UK, no doubt reflects the character of the Financial Centre Frankfurt and this message will certainly be on everyone’s minds throughout 2017 and until the next Finanzplatztag in 2018.

Minimising Brexit risks and strengthening European capital markets

In its position paper “Exit negotiations between the European Union and the United Kingdom: Minimise Brexit Risks and Strengthen the European Capital Market”, Deutsches Aktieninstitut has identified the essential issues with relevance for capital markets and which deserve particular attention due to their significance for business and society in connection with the Brexit negotiations. Furthermore, it makes proposals how the negative impact of Brexit on the affected national economies can be minimised.

In particular, Deutsches Aktieninstitut makes an appeal to the negotiation leaders to enter into objective and constructive talks. The strong economic relationship between the United Kingdom and the European Union should be maintained despite the new framework conditions. It is absolutely essential not to damage the core of the European idea, which is manifested in the four fundamental freedoms of the single market.

“It is up to the negotiators to shape the future relationship between the European Union and the United Kingdom in such a way as to minimize the negative impacts of Brexit for both sides,” emphasizes Dr. Christine Bortenlänger, Executive Director of the Deutsches Aktieninstitut. “With our position paper and its recommendations, we are doing our part so that the start of negotiations can begin on a sound footing from a capital markets standpoint and ultimately to lead to favourable results.”

Luka Mucic, Chief Financial Officer of SAP SE and member of the Executive Board of the Deutsches Aktieninstitut, highlights the importance of the position paper for the forthcoming negotiations. “The paper clearly articulates the stance of the Deutsches Aktieninstitut and its member companies. Negotiators must do everything they can to prevent distortions of competition through tax dumping and a deregulation race between British and EU markets,” explains Mucic.

The central demands of the Deutsches Aktieninstitut are:

  • To minimize disadvantages for all stakeholders and to ensure the attractiveness of European markets;
  • To secure time through transitional arrangements and to ensure the continuity of economic relations between the European Union and the United Kingdom;
  • To expand, harmonize and more efficiently shape third country regulations concerning capital and financial market legislation;
  • Ensure continuity of established and necessary legal institutions concerning basic corporate structures.

These results were developed within the framework of the Brexit project of the Deutsches Aktieninstitut. The project identified topics relevant to the comprehensive economic relations between the European Union and the United Kingdom that will play a role in the coming Brexit negotiations. The interdisciplinary project group, consisting of representatives from member companies of the Deutsches Aktieninstitut, will closely follow the content of the negotiations and as necessary, share its position on each respective negotiating stance.

FinTechGermany Award

CFS Survey – three-pillar model of the German credit industry has proven effective

The financial industry is in broad overall agreement (62%) that the three-pillar model of the German credit industry (commercial banks, savings banks, cooperative banks) has proven effective. This was revealed in a recent study by the Center for Financial Studies of financial institutions and service providers from the Financial Centre Germany. On the other hand, 29% are undecided and regard the three-pillar system as questionable; 8% take the view that the model has not proven effective.

Savings banks and cooperative banks are key to the financing of German SMEs

Onthe question of the respective importance of each of the pillars, over 40% of the survey respondents from the financial industry agree that savings banks and cooperative banks equally make the crucial contribution or at least an important one. Only 20% of the respondents regard the commercial banks as crucial, but 57% believe they are important to the system. On the other hand, 17% believe they are not so important.

“The savings banks and cooperative banks are essential for the financing of German SMEs,” Professor Volker Brühl, Managing Director of the Center for Financial Studies, interprets the results.

Assessments of the German banking sector’s international competitiveness vary – Further consolidation processes expected

The financial industry is sceptical in its assessment of the German banking sector’s international competitiveness. Fewer than 25% of respondents regard the German banking sector as well positioned in an international comparison. “The banking sector is under high pressure to consolidate due to sustained low interest rates, increased regulatory requirements and digitalization. The German banks need to raise the tempo of their restructuring efforts to avoid losing further ground on their international competitors,” Professor Brühl believes. In light of this, the financial industry is in agreement (95%) that further consolidation processes are to come in the banking sector.

An additional factor is that foreign banks are increasingly edging into the German market. There is broad agreement among the respondents (60%) that these actors will continue to gain in importance.

“The survey makes clear how attractive the financial center of Germany is to foreign banks. This is above all a motivation for us in the long term” comments Hubertus Väth, Managing Director of Frankfurt Main Finance e.V.

CFS Index rises significantly

CFS Index: Revenues and earnings of services providers increase substantially / Investments by financial institutions reach a historic high since the survey began in 2007

The CFS Index, which measures the business climate of the German financial sector on a quarterly basis, rises significantly in the final quarter of 2016. It climbs 3.7 points to 114.3 points, reaching its highest level for almost two years. The rise can primarily be attributed to a very positive trend in the revenues and earnings of the service providers in the Financial Centre Germany. The only time these levels have been surpassed is when the surveys were first conducted in 2007. The financial institutions are also reporting a solid rise in revenues alongside steady earnings. Investments by the financial industry are noticeably higher too, reaching exceptionally high levels rarely seen in past surveys. Despite this positive development, the financial institutions are sticking to their plans to cut jobs, though these have been moderated slightly. The service providers, on the other hand, continue to increase their employee numbers, again at a slightly slower rate.

“Numerous banks currently find themselves in a phase of transformation, which is leading to considerable investment requirements, especially in the area of IT. The service providers, in particular, are benefitting from this development,” Professor Jan Pieter Krahnen, Director of the Center for Financial Studies, interprets the results.

Financial industry rates the future international importance of the Financial Centre Germany extremely positively

Following the Brexit vote last year, the rating of the future international importance of the Financial Centre Germany reached a historic high of 136.8 points, then declined slightly in the third quarter, and now rises again by 2.7 points to 131.0 points.

Dr. Lutz Raettig, President of Frankfurt Main Finance e.V. emphasized, “The efforts for the Frankfurt financial center are bearing fruit. Especially the positive results with regard to the international importance of the financial center show that Frankfurt is well positioned and has all the opportunities to gain further importance in this field as well.”

Financial industry revenues, earnings and investments are on the rise

The surveyed financial institutions and service providers rapidly increase their revenues/business volume in the final quarter of 2016. The corresponding sub-index for the financial institutions rises by 3.4 points to 113.0 points. However, the service providers record the sharpest increase of 11.3 points to 130.6 points. The only time this level has been exceeded was when the CFS Index surveys were first conducted in 2007. Expectations for the current quarter are positive among both groups, though slightly more modest than the current levels.

Earnings among the service providers develop particularly positively in the fourth quarter of 2016 and clearly surpass expectations from the previous quarter. The corresponding sub-index for the service providers climbs 8.1 points to reach 123.4 points. By contrast, the financial institutions record a small increase of 0.5 points to remain at the low level of 104.5 points, with no change anticipated in the current quarter. The service providers expect their hugely positive earnings trend from the end of 2016 to level off slightly in the current quarter.

The sub-index for investment volume in product and process innovations rises considerably for both groups, contrary to their expectations in the previous quarter. For the financial institutions this sub-index rises by 6.0 points to 116.1 points, thus reaching a historic high since the surveys began in 2007. For the service providers this value climbs 5.8 points to 117.9 points. Similarly, this level has only been exceeded in the years 2007 and 2014. Both groups are expecting the growth rate to level off just slightly in the current quarter.

Fewer job cuts at financial institutions – Slightly slower job growth among service providers

The huge job cuts recorded by the financial institutions in the third quarter have levelled off somewhat, though employee numbers continue to fall in the fourth quarter. The corresponding sub-index for the financial institutions rises by 4.4 points to 90.4 points. The financial institutions are expecting to make further job cuts in the current quarter. By contrast, the jobs situation among the service providers remains positive, though the rate of job creation is slightly lower. The corresponding sub-index edges down 3.3 points to 113.6 points. The service providers are even more optimistic for the current quarter.

 

Christmas Greetings from Frankfurt Main Finance

Dear Friends and Members,

As 2016 draws to a close, it is prudent to reflect on the past year, our accomplishments, and the challenges we have met. In doing so, one can be quite content with the strides that Frankfurt Main Finance has made in promoting our Financial Centre within Germany and across the globe. We continued to grow and nurture our international partnerships, sending several delegations to financial centres in Asia and Eastern Europe. At our Financial Centre Breakfasts we enjoyed discussions with Arundhati Bhattacharya, CEO of the State Bank of India, and François Villeroy de Galhau, Gouverneur of the Banque de France. Both of these leaders gave us great insight into some of the challenges facing financial institutions in their countries, in particular digitalization.

This year’s Frankfurt Finance Summit focused on this current trend of digitalization in the financial sector and how major actors address the challenges it presents. We were honored to have Günther Oettinger, European Commissioner for Digital Economy and Society, deliver a keynote on the European unified strategy for digitalization. In his keynote, Germany’s Minister of Finance, Dr. Wolfgang Schäuble, expressed his views on where the financial industry is heading, challenging businesses to find new, innovative models that fit into our new world.

At the time of the Summit, the results of the United Kingdom’s referendum on EU membership seemed almost unthinkable. Six months later, we can surely say this was just the first of many surprises in 2016. However, Brexit has presented the Financial Centre Frankfurt with an opportunity to become a facilitator, to grow and welcome more institutions into our city. For Frankfurt Main Finance, Brexit thrust our initiative into the international spotlight. Between hundreds of interviews with international press outlets, speeches and panel discussions, and delegation trips, Frankfurt Main Finance has been hard at work spreading the word about our Financial Centre and our cooperative approach to building a new “London Bridge.”

Winning large institutions for Frankfurt is certainly important, but many of our efforts over the past year have been dedicated to the smallest actors. In the beginning of 2016, Frankfurt Main Finance was hard at work with the Dialogue Forum FinTech Frankfurt Rhine-Main to promote our region as a top destination for Financial Technology start-ups. The past year brought with it an explosion in activity in the FinTech ecosystem and culminated in the opening of Frankfurt’s FinTech Hub, Tech Quartier.

As we enter the quiet days around Christmas and the New Year, we can rest satisfied in our diligent work in 2016 advancing our Financial Centre. We are optimistic in our trajectory and look forward to the opportunities and challenges that 2017 will bring. But until they are here, we wish you and your families a very Merry Christmas and a happy New Year. May your holidays be rejuvenating, inspiring and filled with joy!

 

Warmest Regards,

Your Frankfurt Main Finance Team