Regulating the financial services sector – predictably
From 12 to 16 June 2023, the BPCC was present at the 13th European Financial Congress. Among the participants of the Congress were chamber members Bank Pekao S.A., BNP Paribas Bank Polska, Deloitte, Provident Polska, LuxMed Group, PwC and Santander Bank Polska
The theme of this year’s European Financial Congress, held in Sopot was ‘Credibility in times of crisis of confidence.’
At the opening of the congress, the famous British economist Charles Goodhart* was awarded the Economic Visionary prize by the European Financial Congress.
The BPCC’s participation in the EKF was focused on the following regulatory threads that are relevant to doing business in Poland.
Jacek Jastrzębski, chairman of the the Polish financial supervission authority, the UKNF, pointed to the main issue for the banking sector – the European Court of Justice’s ruling on the use of capital in foreign currency mortgages. Dr Jastrzębski stressed that banks cannot count on statutory solutions in this area, and that the resolution of disputes with bank clients on mortgage loans should be based on an agreement between the parties (bank-client) and on the solution proposed by the UKNF in 2020.
The speech by Verena Ross, chair of the European Securities and Markets Authority (ESMA), at the European Financial Congress is worthy of attention. Ms Ross addressed the issue of building a single capital market across the EU, a difficult but possible task. The aim of building a single capital market is to ensure that companies have access to capital markets, and that investors, small savers and future pensioners can benefit from comparable and transparent investment instruments in all countries of the EU. ESMA is working on a so-called single European access point, which will collect consistent information on companies from across the EU. This is intended to enable investors to make better investment decisions. The introduction of new prospectus regulations aims to provide SMEs with better access to the capital market. The implementation of the Capital Market Union project is important for the European financial sector and the economy. Providing consistent information and better access to capital markets can contribute to business growth, the development of companies and enable investors to make more informed and data-driven investment decisions.
The countries of the EU, including Central and Eastern Europe, have a large investment potential. However, the private equity market in these regions is still relatively underdeveloped compared to more developed markets in Western Europe. Limited availability of investment capital may be a constraint to larger deals. The conclusion is that, although the private equity market in Central and Eastern Europe is still developing, there is now strong investment potential. Investors are beginning to see growth opportunities; more and more private equity funds are betting on these markets. However, careful research and analysis is needed to understand the specifics of each country and adapt investment strategies to their conditions and needs.
Also presented at the European Financial Congress were the conclusions of a project coordinated by Prof Jerzy Hausner, the Index of State Credibility, and the results of a macroeconomic forecast based on the opinions of 36 experts, which indicate a weakening of the credibility of the Polish state, as well as a low index of credibility compared to other EU countries. The recommendations made by the economists included several measures to improve the situation. Reducing the fiscal deficit is one of the demands made to maintain the sustainability of public finances. Increasing the transparency of the government’s actions in public finances means that economists recommend a clearer and more transparent presentation of information on state spending and revenues. According to economists, regulatory stability is another factor that is important for economics. Good regulation and a stable legal framework can stimulate investment and economic activity.
The second day of the EKF included debates on new technologies related to artificial intelligence, especially those supporting the financial sector, and cloud solutions.
From a regulatory point of view, the DORA (Digital Operational Resilience Act) regulation deserves attention. DORA was adopted and published on 27 December 2022 in the EU Official Journal. The provisions of DORA will apply from 17 January 2025. During the panel entitled ‘New challenges of cyber security. What impact will the DORA regulation have on the Polish financial sector’, speakers pointed out that DORA will enforce effective cyber risk management, standardised incident reporting and information sharing. Implementing the regulation will change the level of security awareness among service providers and will result in new obligations for providers.
The topic of the cloud market and its regulation also came up during the debates. The cloud market in Poland has undergone a significant evolution over the past few years. This has been influenced by numbers of factors, including technological developments, changing business needs and regulatory initiatives. The second cloud communiqué of the KNF, published three and a half years ago, introduced significant facilitations for the implementation of the public cloud in the financial services market. The communiqué set out rules for the secure use of the cloud, and provided guidelines for managing the risks associated with cloud services. This document provided financial institutions with greater legal and regulatory certainty and guidance for dealing with public cloud deployments. Conclusions from subsequent debates highlight the growing role of the cloud in the Polish financial sector and the benefits it brings to companies and customers. At the same time, it is important to adequately manage risk and data security, which requires close cooperation between financial institutions and cloud providers, and compliance with supervisory guidelines and regulations.
The development of AI was a topic that emerged in many panel discussions. Panellists emphasised the need to tame AI in organisations and among customers. The aim was to change the outlook on AI so that it is not seen as something negative, but as a future-proof solution. In the context of the financial sector, AI and new technologies can help banks create effective products and services that are convenient for customers. By analysing large data sets and using advanced algorithms, artificial intelligences can support decision-making, analyse market trends, optimise business processes, and personalise offerings for customers. It is important to ensure adequate safeguards, ethical use of data and appropriate regulation to ensure transparency and trust in the use of artificial intelligence. A representative from Google Cloud noted that “generative artificial intelligence admittedly breeds terror, but it opens up a huge field of opportunity”.
The three-day conference closed with the Presidents’ Debate, entitled A map of the challenges facing the banking sector’. CEOs from banks discussed current threats and challenges for the banking sector. According to the CEOs, the biggest threats are:
- The lack of predictability in the political, economic, and regulatory environment which makes decision-making difficult. The economy and businesses need stability and certainty to plan long-term growth strategies.
- Unpredictability and instability in the regulatory environment may affect investors’ and entrepreneurs’ perception of Poland. If laws and regulations are frequently changed or unclear, investors may fear for their interests and avoid investing in the country.
- Rising interest rates can have serious consequences for the economy. Higher borrowing costs can affect firms’ ability to invest and grow. Rising interest rates may also lead to an economic slowdown.
- War in Ukraine: The armed conflict in Ukraine may affect Poland in various areas. This may include regional security, migration, political and economic stability.
In difficult economic times, it is important that the banking system is sound and stable. Banks play a key role in handling economic processes, providing credit and financing investments. If the banking system is vulnerable to crises or unable to support businesses, the economic situation may worsen.
* Charles Goodhart’s greatest claim to fame is ‘Goodhart’s Law’, which states that “Every statistically observed relationship tends to fail the moment it starts to be exploited for regulatory purposes.”