Even ten years after the financial crisis, the process of settling the economy is still going on.
At this time in European countries, banking regulation has gone too far. Even now, 10 years after the global financial crisis, 5 new rules in the banking sphere come into force. These rules can make European banking more competitive, toughen the laws of trade, and most importantly – to increase profits. On the one hand, the new rules are aimed at improving the stability of the European financial system. Nevertheless, bankers are critical of innovation, considering them – excessive control increase, as a consequence of the global financial crisis of 2007-2008.
On January 13, 2018, the updated EU directive on payment services enters. Now it’s called PSD2. This document establishes the conditions for interaction between several parties:
1) monopoly banks that own customer account data and tight control over-payments;
2) financial and technological companies;
3) competitive banks.
Payment providers enable you to pay through direct transfers from your bank accounts to merchant accounts. Aggregators of accounts combine account data from several banks, and this allows Europeans to observe all their finances in one place to find the best conditions for insurance, mortgages and similar banking services.
New participants in banking operations need not only to be able to use money and data from their accounts but also to cooperate with banks. They are worried that the banks will act dishonestly. At the same time, banks assume that opening their system can expose their clients to risk and fraud.
Personal Data Protection
On November 27, 2017, the European Commission adopted technical standards intended to balance competition and security. And although this directive applies from the next month, the standards may not come into effect until September 2019. And this means that banks should independently find solutions to issues with their competitors.
According to the new standards, customers need to provide at least two of the three possible types of identity confirmation before confirmation of the transactions. First of all, customers must verify their identity three times:
- they know (code or password);
- they have (phone number or credit card);
- what they are (biometric data).
An integrated approach to identity identification has become widespread in the banking sector, but still, it is not universal.
The bank can communicate with payment service providers and aggregators of accounts in two main ways. You can login to the account through the interactive client interfaces. Or they can also create individual interfaces through which beginners can connect their applications. Presumably, most banks will choose the latter option. However, in this case, banks should be protected in case the specified interface does not work.
When retail banks collide with PSD2, investment banks and asset managers have already prepared for the updated MiFID2 (Markets in Direct Financial Instrument). MiFID2 will be active from the 3rd of January. The innovation plans to make operations in the banking sector more understandable, and therefore – more resistant to competition and safe. It will also limit trading in securities on the inside of banks and will force more derivatives, still traded “above the counter” on centralized exchanges. Some banks reduce taxes, while others save on analysts.
Financial Security – Above All
There were a lot of changes in the security. Since January 2017, European banks will have to apply the new IFRS 9 standards. This will oblige banks to anticipate expected losses on loans instead of waiting for the losses. This is likely to lead to default next year. Most European banks said they expect changes in profits and lending.
Thus, European banks are trying to improve their control system more and more. All these are the consequences of the global financial crisis, the Brexit movement and the impact of US policy on the banking sector in Europe. Nevertheless, the question: “Will excessive regulation of the banking sector lead to economic prosperity?” – remains open.