Since 2011, prominent actors from the national and international financial world have gathered for the Frankfurt Finance Summit. Under the motto Europe Reloaded – Challenges for the Financial Sector, decision-makers from central banks, stock exchanges, supervisory authorities, banks, insurance companies, politics, business and academia met on 26 April 2017, in the Financial Centre Frankfurt to discuss current issues faced by the European economy, regulators and financial markets. This year concentrated on three key areas challenging the financial sector: Europe after Brexit, Cyber Security and Innovation, and the Transformation of Long-term Financing.
Dr. Lutz Raettig, President of Frankfurt Main Finance, opened the Frankfurt Finance Summit by celebrating the diversity of the attendees and speakers, ranging from several countries and continents and a broad range of backgrounds in the financial services industry. He explained that this year “change is the story – change in all directions,” and that fundamental changes due to Brexit and banking regulation will follow the industry for years to come. Raettig closed by thanking the sponsors of the Frankfurt Finance Summit for their generous support. Sponsors this year included Deutsche Bank, McKinsey & Company, Deutsche Börse Group, DZ Bank, ING-DiBa, the Association of German Pfandbrief Banks, and Frankfurt Economic Development GmbH.
The time for diplomacy
The day’s first topic, Europe after Brexit, began with a keynote from Baroness Catherine Ashton, Former First Vice President of the European Commission and former High Representative of the EU for Foreign Affairs and Security Policy. The veteran diplomat reflected on her experiences in complex negotiations ranging from EU trade deals to the chairing the P5+1 leading to the Geneva interim agreement on the Iranian nuclear program in 2013. Lady Ashton’s insights into the intricacies and keys to success for these sorts of arbitrations resonated with the representatives of the financial sector whose organizations will certainly be touched by the forthcoming Brexit negotiations. Lady Ashton emphasized that diplomatic solutions are not always just found in negotiations, but rely on coalition building to provide a comprehensive approach to resolving complex problems. She closed by stating, and perhaps reminding the audience of the European Project’s many successes, that “diplomacy is soft power at its best. And that’s what Europe does best, soft power.”
Banks look for clarity in Brexit negotiations
Chaired by Prof. Dr. Uwe Stegemann (Senior Partner, McKinsey & Company), the following panel discussion on Europe after Brexit featured Sylvie Matherat (Chief Regulatory Officer and Member of the Management Board, Deutsche Bank AG), Michael Theurer (Member of European Parliament), and Jens Wilhelm (Member of the Executive Committee, Deutsches Aktieninstitut e.V., and Member of the Executive Board, Union Asset Management Holding AG). Diving right into the topic, Sylvie Matherat explained the potential consequences for banks, particularly the difficulties caused by the uncertainty surrounding the Brexit negotiations. Matherat explained that the large banks will prepare for the worst and hope for the best. “For front office people, if you want to deal with an EU client, you need to be based in the EU,” Matherat said. “Does it mean I have to move all the front office people to Germany or not? We’re speaking of 2,000 people.” The situation for banks is quite difficult, as two years is not very much time to move entire operations. Looking past Brexit into the future, Michael Theurer emphasized that it is important to continue with European integration and strengthening the European Union.
Cybersecurity threats a growing concern for all of society
Eugene Kaspersky, CEO of Kaspersky Lab, delivered a keynote on Cybersecurity and Innovation. He explained the scope of today’s cyber risks, detailing specific threats to four critical sectors: power, transportation, telecoms and financial services. Kaspersky Lab collects 300,000 unique malicious objects every day. The cybersecurity pioneer explained that cybercrime costs the world between 375 and 465 billion euros per year, which is almost twice the GDP of Hesse. Kaspersky advised that IT systems need to be safe, secure and immune by design. Looking forward he stated that there is “a lot of work. Starting from the government regulation, education, technologies, implementation and international cooperation.”
For the first panel on cybersecurity, moderated by international economist Cornelia Meyer, Felix Hufeld (President of the Federal Financial Supervisory Authority (BaFin)) joined Dr. Andreas Dombret (Member of the Executive Board, Deutsche Bundesbank). The panelists discussed regulatory efforts to confront cybersecurity risks. Felix Hufeld detailed BaFin’s newest set of guidelines, BAIT (Bank Supervision Requirements for IT). He explained that “from an individual bank’s point of view managing cybersecurity is one component of what you could consider operational risk. […] Logically speaking, it’s an application of risk management procedures, strategies, governance structures, and what have you, of course applied to a uniquely new challenge.” Dr. Andreas Dombret emphasized the importance international cooperation and for organizations to learn from each other. When asked, what regulators expect from financial institutions, he stated, “if we all agree that cyber-risks are here to stay, the financial institutions we supervise should treat these risks with the same deliberation and the same whole heartedness, so to say, as all the traditional banking risks.”
Education key to creating a safer IT environment
Offering another view of cybersecurity, Daniel Domscheit-Berg (Author and Former Spokesperson, WikiLeaks) joined Eugene Kaspersky on the panel to discuss cybercrime and how organizations can best defend against these risks. Domscheit-Berg discussed the human factor often being the biggest weakness for an organization. He explained that “you should make sure that whoever works for you, in whatever capacity, that they not only have good rules, but they also have a good understanding of why these rules matter and why they need to stick to these rules. And if you explain that very well, […] then I think from an educational perspective you’re getting towards a more secure environment.” Kaspersky reinforced the human factor in cybersecurity, discussing the difficulties in fighting cyber criminals. He described this human versus human fight as a chess match and underscored the arduous task of predicting future risks and criminals next moves.
Banks’ critical link to the real economy
The Summit’s final panel featured the heavyweights of the Financial Centre Frankfurt in a discussion on the transformation of long-term financing and the future role of banks. Panel moderator, Jens Tolckmitt (CEO, Associaton of German Pfandbrief Banks), was joined by Wolfgang Kirsch (CEO, DZ BANK AG), Michael Rüdiger (CEO, DekaBank Deutsche Girozentrale), and Roland Boekhout (Chairman of the Management Board, ING-DiBa AG). Long-term financing is one of the critical functions banks play in society and a classical area where banks serve the real economy. However, since the financial crisis, the changing regulatory environment has made it difficult for banks to gauge their appetite for taking on long-term risk. The panelists agreed that there is a mismatch in incentives from regulators for banks to provide long-term financing. To meet the credit demand in the market, new actors have become active in this field. Roland Boekhout suggested FinTechs and peer-to-peer financing platforms entering this arena are not likely to gain traction, primarily sticking to short-term products. Boekhout underscored the added value of banks expertise in the credit business and structuring the facility on a risk.
The seventh Frankfurt Finance Summit came to an end with the traditional closing remarks from Wolfgang Hartmann (Chairman of the Executive Committee of the Frankfurt Institute for Risk Management and Regulation (FIRM)). Hartmann reiterated the challenges facing the European financial sector, especially those from Brexit. Additionally, he announced that this would be his final Frankfurt Finance Summit as the Chairman of FIRM.