On May 29, 2018, well-renowned international and national experts from the financial industry and decision makers gathered at the 8th Frankfurt Finance Summit titled Ready, Steady, Go! Who is ready to set the pace in challenging times? to debate the challenges and the strategic responses to current issues facing the European economy, regulators and financial markets. The decision-makers from central banks, stock exchanges, supervisory authorities, banks, insurance companies, politics, business and academia further discussed the future location and supervision of euro-denominated clearing transactions by central counterparties after Brexit and the advancement of artificial intelligence and the potential implications for financial institutions.
Dr. Lutz Raettig, President of Frankfurt Main Finance, opened the Frankfurt Finance Summit by welcoming the attendees and speakers, ranging from several countries and continents and a broad range of backgrounds in the financial services industry. Dr. Thomas Schäfer, Member of the Hessian Parliament and Hessian Minister of Finance, followed with a welcome address in which he discussed recent legislative proposals by the European Commission concerning EU financial markets, stating that he finds a EU single market to not be necessary. In his opening keynote Dr. Jörg Kukies, State Secretary at the Federal Ministry of Finance discussed the transitional period of Brexit as well as the consequences for EU27 and the Financial Centre Frankfurt. Kukies proudly stated, “If we look at Frankfurt, we see a city in a very good starting position. Frankfurt is one of the continent’s leading financial hubs and plays in the league of the world’s leading financial centres.” Kukies further enumerated a lengthy list of the Financial Centre Frankfurt’s advantages, including its deep talent pool, academic network, and outstanding quality of life. Thereafter, Jeroen Dijsselbloem, former President of the Eurogroup and former Minister of Finance of the Netherlands delivered the European keynote in which he gave an outlook on the potential consequences of Brexit and a political and legal way forward, saying that “For Frankfurt, it’s a good outlook. When I go to the UK, bankers will tell me – they won’t say this publicly of course – that the amount of business and the amount of people they’re going to shift, is larger than what is publicly being talked about and Frankfurt is at the top of the list.”
The impact of Brexit on British financial institutions
The Summit’s first panel addressed tomorrow’s strategic responses to the major questions in the financial industry. Chaired by Prof. Dr. Uwe Stegemann Senior Partner, McKinsey & Company, the panel featured Katharine Braddick, Director General of Financial Services at HM Treasury, Bernd Geilen, Vice-Chairman and Chief Risk Officer at ING-DiBa, Thomas Grosse, Industry Leader Banking and FinTech at Google Germany, Felix Hufeld, President of the Federal Financial Supervisory Authority (BaFin) and Dr. Cornelius Riese, Chief Financial Officer at DZ Bank AG. As part of the debate, Kathrine Braddick discussed the impact of Brexit on the financial services industry in London, saying that Brexit is not a concern for most domestic firms, as they are primarily concerned with UK markets. When discussing the relocation of financial institutions from London to Frankfurt Braddick stated, “I think that first phase of moves is relatively confined. Most firms affected I think they are expecting there will be a second phase and depending on the relationship that we achieve with the European Union and of course our aspiration is a very close relationship on financial services that will determine the scale of that second phase and to me that is currently unknown.” The panel further addressed the challenges of digitalisation from an implementation and regulatory standpoint. This discussion naturally progressed to encompass the demands of recent data protection regulations, like GDPR and PSD2.
The consequences of Brexit for Euro clearing
The Summit continued with a discussion on the future of Euro Clearing after Brexit, beginning with a keynote from Yves Mersch, Member of the Executive Board of the European Central Bank, in which he discussed the potential adaption of legal frameworks regulating Central Counterparties (CCPs) who are located outside of the European Union, stating that “Ultimately, amending both the European Market Infrastructure Regulation (EMIR) and Article 22 will establish a comprehensive legal framework to address the risks CCPs pose to the Union – both its financial markets and its currency. It will ensure that the EU’s legislators, supervisors and central bank – acting in their respective roles – can adopt the wide range of measures needed to safeguard stability.”
The following panel, moderated by Annette Weisbach, further explored the future supervision of the clearing of euro denominated derivates by CCPs with financial industry experts such as Karin Dohm, Managing Director and Global Head of Government and Regulatory Affairs and Group Structuring at Deutsche Bank, Christoph Hock, Head of Multi-Asset Trading at Union Investment Privatefonds, Erik Tim Müller, Chief Executive Officer at Eurex Clearing AG, Patrick Pearson, Head of Financial Markets Infrastructure and Director General of Financial Stability, Financial Services and Capital Markets Union at the European Commission and Fabrizio Planta, Head of Markets Department at the European Securities and Markets Authority. Diving right into the topic, Eurex’s Erik Tim Müller explained, “Our objective is to talk to the clients and find out what their needs are and the needs that we hear is that today obviously all eggs are essentially all in one basket in London and that seems like a very risky set up given the circumstance. So, what we came up with at Deutsche Börse is a market lead alternative for these market participants to build up a second liquidity pool. […] We came from less than one percent market share 12 months ago to over six percent market share now and rising.”
Giving insights into what is important to asset managers, Union Investment’s Christoph Hock, , highlighted the importance of competition in order to lower transaction costs for the benefit of investors. “You’ve had monopoly structures, take LCH, they’ve had something like […] 95% of interest rate derivatives cleared on LCH and obviously monopoly structures are not beneficial for lowering cost of trading and also when we are looking at innovations, that is completely left aside. […] That’s why we highly appreciate the partnership program Deutsch Börse Eurex offered to the market which caused prices to come down, big offer spreads to tighten. Our assessment is that with this new offering we are able to lower also our cost of trading and in this context our cost of clearing. […] Would we prefer to have a strong second clearing hub here on the continent, i.e. with Eurex? The clear answer is yes,” said Hock.
Artificial Intelligence in the financial industry: a new frontier
The third panel on artificial intelligence in the financial industry began with an impulse speech by Carsten Murl, Head Enterprise Security Solutions Germany at Mastercard, in which he explained how Mastercard is very successfully using artificial intelligence for smart fraud protection throughout their entire stream of transactions addressing various needs. Thereafter, the panel featuring Charles Delingpole, CEO and Founder of ComplyAdvantage, Markus Nigg, COO of ti&m AG, JP Rangaswami, Group Chief Data Officer & Group Head of Innovation at Deutsche Bank AG, Francisco Webber, CEO and Co-Founder of Cortical.io, and Peter J. Wirnsperger, Partner Cyber Risk Services at Deloitte discussed various aspects of data protection and whether artificial intelligence can be understood as the problem or the solution to data security in the financial service industry. During the debate, Deutsche Bank’s JP Rangaswami explored the definition of data safety and the responsibility it brings to companies processing data while highlighting the importance of people feeling secure and empowered by the ability to consent to the usage of private data. Moreover, Deloitte’s Peter J. Wirnspergeremphasised the consequences of data misuse and thus, the importance data protection has, which is something that should be of concern not only to the economy and but society as a whole.
The eighth Frankfurt Finance summit came to an end with closing remarks by Professor Dr. rer. pol. Dr. h.c. Udo Steffens, Chairman of the Executive Board at the Frankfurt Institute for Risk Management and Regulation (FIRM).
Frankfurt Main Finance and the Frankfurt Institute for Risk Management and Regulation would like to thank this year’s sponsors for their generous support. Deutsche Bank was this year’s Gold Partner. Silver Partners included Deloitte, Deutsche Börse Group, DZ Bank, ING-Diba, Mastercard, and Wirtschaftsförderung Frankfurt.