Staley says regulators have ‘woken up’ to fintech's cyber threat
(Bloomberg) -- Global bank chiefs descended on a summit in Washington with a warning for regulators: Opening the financial system to thousands of fintech startups and Silicon Valley titans may unleash a wave of cybercrime.
Word is, governments are starting to see those dangers too.
“The regulators have woken up,” Barclays Plc Chief Executive Officer Jes Staley told an audience at the annual meeting of the Institute of International Finance. “They will have to extend their reach if they are going to protect the integrity of the payment systems and financial data of consumers around the world, who will soon be asking their data to be shared with this aggregator or that.”
Starting in January, virtually every lender in the European Union will have to provide outside firms with regular access to their customers’ accounts and data under a law known as the Payment Services Directive 2, or PSD2. The legislation is designed to help challenger banks, up and coming fintechs, and tech giants like Apple Inc. and Alphabet Inc.’s Google compete with traditional lenders and payment processing firms. The tech companies just need to persuade bank account holders to grant permission.
“When you download information to that nice fintech company with no firewalls, then what is going to happen to that client’s data?” Staley said, calling PSD2 and open banking one of the biggest experiments in financial history. “The way regulators intersect with technology and payments has to move to make the system safer” from fraud and cybercrime.
His comments were echoed by executives at Deutsche Bank AG, UBS Group AG and Royal Bank of Scotland Group Plc over the four-day IIF event. Timothy Adams, president of the IIF, said members of the group’s board are now telling him the group should stop talking about Basel capital standards in its meetings and discuss cyber issues instead.
“PSD2 is the big one -- we are not confident that our customers’ data will be protected from hackers and thieves,” RBS Chairman Howard Davies said in an interview on the sidelines of the conference. “We cannot refuse to hand over data because that’s what the legislation says, but we will have to try to educate people to understand the vulnerability that they will then have if they give an aggregator the license to scrape all their data.”
The main point of contention for bankers was that their new competitors aren’t held to the same data protection, cybersecurity or capital standards as banks. Time and again, executives complained of an uneven playing field and warned that regulators are sleepwalking into a fraud crisis.
“Everyone who is lending money should be treated as a bank,” UBS Group CEO Sergio Ermotti said. “The danger going forward is some of the new players are allowed to use data in a way banks are not and this could cause problems. One of the biggest issues going forward is how to bring back a level playing field for banks and new entrants.”
Sitting on a panel together, Marcus Schenck, the co-head of Deutsche Bank’s corporate and investment bank, posed a question on open banking to European Central Bank board member Sabine Lautenschlaeger.
“We are all spending lots of money on protecting the financial system against financial crime,” Schenck said. “What is going to make sure that all these payment providers opened up all across the planet are also being captured?”
She said regulators were mindful of that and it’s important to have unified global rules.
JPMorgan Chase & Co. investment bank chief Daniel Pinto said the banking industry needs to do a better job of sharing information and stressed the need for global standards in cybersecurity.
Staley also said Barclays will increasingly need to defend its advantages in the payments business from encroachment by tech companies including Amazon.com Inc. and Apple Inc.
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“There are some tectonic shifts going on, driven by tech and the geopolitical environment,” the CEO said. “All the banks are very focused on the payments space. That may be where the battleground of finance is fought over the next 15 years.”
--With assistance from Yalman Onaran and Hugh Son