The idea that European banking resolution laws would be applied equally across the EU is dead. Desperate to avoid a bail-in, Italian banking authorities agreed to wind down Banca Popolare di Vicenza and Veneto Banca, splitting off the bad loans and selling the good loans to Intesa SanPaolo. As Lafferty's Patrick Houlihan wrote last week, Rome found itself in a mess as it tried to organise a rescue of Italy's unlisted banks, Veneto Banca and Banca Popolare di Vicenza. With UniCredit already committed to building its capital ratios, it fell to Intesa SanPaolo to take over the assets of the two near-dead firms. The country's economy minister, Pier Carlo Padoan, said that the state would put €5bn into the failed banks to cover losses from bad loans — even though this goes against the principle of no further state aid under the Bank Recovery and Resolution Directive. EU commissioner Margrethe Vestager said that "Italy considers that state aid is necessary to avoid an economic disturbance in the Veneto region."
But Italy's banking woes are not confined to the Veneto. For some insight into how unlisted Italian regional banks are tied to their local political leaders, read this excellent analysis from the Financial Times. It was written six months ago and the sorry tale of lax supervision speaks volumes about the overly cosy relationship between the bank and local politicians. Commenters have suggested that the avoidance of bail-in will help keep a lid on roiling Italian anger about the long and drawn-out banking crisis and the unhealthy closeness of their politicians and bankers. Moreover, as Bloomberg argues, "for the Italian taxpayer, and the credibility of euro zone financial regulation, the plan is a loser and should be stopped."
JCB today announced a partnership with Australian regtech business iSignThis, which has signed a direct licence agreement to process JCB transactions in SEPA (the Single Euro Payments Area). The Australian compliance business provides remote identity verification, payment authentication and payment processing to meet AML/CFT requirements. Australia is hopeful that its regtech sector can become a worldwide success, with regtech squarely on the radar screen of Treasurer Scott Morrison, according to Australian stock market forum Hot Copper. "[Mr Morisson] told a G20 meeting in Germany in January 'it is time for governments to consider how to implement regulation in lower cost ways through the use of regtech. Regulation and compliance systems need to adapt and evolve'." Australian regtech businesses and regulators are hopeful that Australian expertise in compliance will have international appeal.
The continuous evolution of compliance laws means there's plenty of scope for regtech. As Equifax notes, today is the implementation date for the new EU money laundering directive, MLD4, and small firms — never mind the larger ones — are struggling with compliance. "The rise in high profile fines for failing to maintain money laundering defences proves that this issue is a key regulatory priority," said John Marsden, head of ID and Fraud at Equifax. "Financial penalties for big players have pushed other industry giants to get their anti-money laundering procedures in shape. Aware that they'll be in the FCA's firing line, many big financial institutions will be ready to face a regulatory assessment of their MLD4 compliance processes. The same can't be said for smaller firms, where many have been slower on the regulation uptake. It's arguably unfamiliar territory for the FCA to hone in on smaller businesses, but with anti-money laundering so high on the agenda economically and politically, this time could be different. While a traditional approach would target the bigger banks, smaller financial institutions could be subject to a series of warning shots in the form of audits, investigations and sanctions, should the regulator suspect they are failing to comply with MLD4. As a final step, a hefty fine could be issued which would have a significant financial impact on smaller businesses."
Finally, a big thanks to all the participants in last week's Lafferty International Councils, which were co-hosted by Discover in Chicago. This week we'll be sharing the major talking points and the presentations with the Council members. One of the discussions posed the question: "Who will win at the POS?" The question was, theoretically, about the challenge to the card businesses from the mobile phone, but one delegate answered the question elegantly: "the customer will win". We've been tracking design thinking closely, and banks are slowly coming around to this way of thinking. "They've realised they no longer dictate how they do business and what they produce; their customers do," according to Tearsheet. "In a digital world filled with choice, banks' customers need choice, empathy and ease of use designed into every interaction they have with the bank — and they need to deliver on that quickly, before their competitors, which now include retailers and other non-banks."
Fed's stress tests raise concern over financial safety standard [FT paywall]
Klarna wins its banking licence [FT paywall]
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