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.

Brexit Negotiations

Frankfurt Main Finance hopeful for constructive Brexit negotiations

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.”

Frankfurt Main Finance continues to regret the United Kingdom’s withdraw from the EU and anticipates the loss of rights, including passporting. Managing Director Väth further explains, “The Financial Centre Frankfurt is exceptionally situated to assume a position functioning as a bridge for London into the EU. 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.”

Contact Person for Media Inquiries:
Dr. Ralf Witzler
Frankfurt Main Finance e.V.
Telephone 069 94 41 80 – 50
ralf.witzler[at]fmfinance.de

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 FinTech Report #5 – Frankfurt FinTech goes global!

South Korea, Hong Kong, Norway and Holland – in the first quarter of 2017 Frankfurt Main Finance was very busy developing its relationships around the world. In January, a Frankfurt FinTech delegation visited FinTech events in Busan and Hong Kong. In February, Frankfurt Main Finance made its first ties with the Norwegian FinTech scene and further solidified its relationship with Holland FinTech.

FMF delegation visit to South Korea and Hong Kong in January

Under the leadership of Dr. Lutz Raettig, President of Frankfurt Main Finance (FMF), a German FinTech delegation, organized by FMF, traveled to South Korea and Hong Kong from January 11 to 19. FMF Members Techfluence, Frankfurt School of Finance & Management and Peermatch also had representatives on the delegation.

In Seoul, the delegation took participated in the Korea-Germany Global Fintech & Blockchain Symposium at the Korean National Assembly. The delegation also met again with Chairman Kim Jung-Hoon, the Chairman of the Policy Committee of the Korean Parliament. After visiting Dayli Financial Group, one of Korea’s leading FinTech companies, the delegation continued its visit in Busan.

FMF signed a first agreement on a comprehensive partnership with the city of Busan in 2013, followed by a further agreement on FinTech in January 2016. At the Korea-Germany Fintech Roundtable, German and Korean FinTech companies presented themselves and took part in a lively debate on the future of FinTech in Korea and Germany.

In Hong Kong, the delegation participated in the Asian Financial Forum (AFF), the largest finance conference in Asia. In cooperation with the FrankfurtRheinMain GmbH and Hessen Trade & Invest, FMF was an exhibitor at the AFF and explained the advantages of Frankfurt as Continental Europe’s leading financial center and a premier location for Asian financial institutions.

At the FinTech O2O International Fintech Pitch Evening in Cyberport, the state-owned tech center in Hong Kong with more than 30,000 sq. meters of space for FinTechs and other tech companies, the delegation took a deep dive into the Hong Kong FinTech community for the first time. The FinTech O2O was part of the startmeup.HK week, organized by the Hong Kong government in collaboration with Invest.HK to promote the local start-up scene. At the AFF Deal Flow the next day, FinTech companies met potential investors. After further meetings with FinTech companies, the Hong Kong Monetary Authority, Cyberport and Metta, the Next Money FinTech Finals 2017 was the highlight of the trip for most delegates. The Next Money FinTech Finals are among the top 10 FinTech events worldwide.

Korean-German Blockchain Cooperation

At the Korea-Germany Global Fintech & Blockchain Symposium held in Seoul on January 12, 2017, a Memorandum of Understanding was signed between the Global FinTech Research Institute in Seoul, the Korean Society of Blockchain and FMF. This Memorandum of Understanding will pave the way to a more intensive cooperation between Korea and Germany on Blockchain. More than 30 members of a Korean-German Blockchain Working Group will meet for the first time on April 7, 2017.

Visit of a Norwegian FinTech Delegation

Since last year, FMF and the Royal Norwegian Embassy in Berlin have closely collaborated on FinTech matters. On February 1, 2017, a Norwegian delegation with representatives of Innovation Norway, the Norwegian Tech Industry Association, the Embassy, ​​the Foreign Ministry and the Tøyen Startup Village Frankfurt visited the Financial Centre Frankfurt. At an event in Deutsche Börse’s FinTech Hub on Sandweg, the delegation met representatives of Frankfurt FinTech companies. Both sides are keen to continue the exchange during the year with further events.

Money2020 Pre-Event in Frankfurt

In close partnership with Holland FinTech, FMF successfully organized two FinTech matchmaking events last November in Amsterdam and Frankfurt. A further meeting took place in Frankfurt in the new Tech Quarter on February 8, 2017, supported by ING DiBa. It featured the European roadshow of Money 20/20. After welcome speeches from all the partners involved, a panel with renowned industry experts discussed the implications of the forthcoming PSD2 directive.

If you are interested in participating in similar activities and events, please contact Dr. Jochen Biedermann.

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.