Fintech banks fall under the radar of the ECB

How will the European Central Bank assess licence applications for Fintech Banks aiming to compete with traditional Banks in an increasingly competitive market?

Banking alert | 26 September 2017


The European Central Bank (ECB) is working on new licencing guidelines, with specific provisions for Fintech Banks as a key innovation. In a recent press conference Danièle Nouy, the Chair of the Supervisory Board within the ECB, stated that the ECB is “devising a guide on licencing that also covers fintechs.” She added that “this guide will be published shortly for the purpose of a public consultation.” In this respect she acknowledged that the lower barriers to entry into the Banking market have made it more “contestable” or competitive.

The guidelines are, therefore, expected to shed further light on the application process and supervisory expectations surrounding licence applications for both traditional credit institutions and Fintech Banks.

How does the licence application for a Fintech Bank differ from that for a traditional one?

Although still relatively small, the Fintech sector is gaining traction within the banking industry. Reuters reports that Fintech enterprises are successfully garnering market share at the expense of more traditional business models. While growth in the banking sector is a welcoming development, the ECB would nonetheless wish to ensure that these innovative businesses are subject to the appropriate scrutiny. This is crucial to prevent unnecessary risks to the stability and confidence within the sector as a whole.

The application process is expected to be, essentially, homogenous for both traditional banks and their more tech-focused counterparts. Currently, the national competent authorities act as the first contact point for receiving licencing applications. However, the assessment of banking licence applications is conducted jointly with the ECB, which is authorised to make the final decision to grant, extend or withdraw a banking licence in the euro area. This is likely to remain as is for the foreseeable future.

Differences will most likely be seen in the regulatory expectations for the two categories in respect of the licence application. It is deemed probable that the ECB will demand and seek to obtain additional justification on key aspects such as the robustness of the Fintechs’ risk management framework and governance policies and procedures. Along with this, the regulator will also wish to see a significant financial commitment from the shareholders of a prospective Fintech Bank with the objective of minimising the threat to depositors’ funds.

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Deloitte Malta has extensive expertise in:

  • Assessing the viability and sustainability of your current business model and strategy, and in considering the benefits of moving into the Fintech space;
  • Re-designing, adjusting and transforming your business model, while complying with EU licencing and supervisory standards relating to Fintechs;
  • Conducting a feasibility assessment which would incorporate the necessary capital and liquidity requirements combined with the investment needed for an adequate risk management framework;
  • Determining the viability and potential targeted return in the event of a successful licence application.

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