This session was moderated by Åke Freij, an experienced regulatory expert currently at the Stockholm School of Economics. The panellists were: Christian Patay, CEO/founder of Climate Tracker Initiative; Simonas Krepsta, board member at Bank of Lithuania; Sofia Lindh Possne, Swedbank; Agnija Gailane, Nordea Bank.

Freij said that he spends all of his day trying to answer the tricky question of whether regulation was driving innovation or tightening the screws on growth, adding that he was interested to see if the panel found regulation inherently boring, or if it was valuable and exciting. 

Gailane kicked off and said that she was talking from an open banking perspective which has driven innovation. But this was not the case 15 years ago, and she was very sceptical about PSD2. Sharing data with third parties to deliver customer need in embedded finance is exciting. But it has been a long journey to arrive at this point, requiring a significant investment in time, resource and talent. The mandate from management has been to stay the course and keep making progress until the trust exists.

Competition is no fun if the rules keep changing and are different for your competitors.

Lindh Possne said that as a policy expert she thinks it is essential to be well regulated as this forms a cornerstone of society. Risk mitigation and rule clarity combined with trust from the regulators is what customers expect. It also gives comfort to investors. But can regulation spur innovation? It can if the regs are efficient, fair, predictable and create a level playing field. Competition is no fun if the rules keep changing and are different for your competitors.

Krepsta offered the regulator view as a creator of regulation, saying we all want regs to be good and well balanced. They do tend to slow down innovation and growth, leading to higher costs of investment and compliance. Fintech accelerated after the last financial crisis off the back of new regulation. This cyclical regulatory development is typical and follows a crisis or market disruption. Trust becomes essential. But the last crisis was 15 years ago and the likes of Donald Trump and even Mario Draghi are driving big change. Where things are not working, we should not be afraid to change them.

Patay commented on CSRD which he was in favor of, along with sustainability, but he admitted it brings with it a huge reporting burden. Any inconsistency with other regulations internationally makes it extremely hard to compete. How can regulations foster trust, especially when they are usually a reaction to failure.

Krepsta added that trust can be lost instantly. The customer has a service expectation and this comes at a cost. Tariffs within the EU are significant and this is before the prospect of tariffs from the US! Lindh Possne said that an onslaught of regulation might engender trust and regulations do supply clarity. The financial crisis generated sector specific regulations before sector-wide ones emerged to drive digitalization and sustainable finance. But this has crafted a complex regulatory environment where there is conflict and overlap. Retention of trust relies on dialogue with the government and regulators.

Gailane stated that trust requires interaction between banks and fintechs – with PSD2 the regulation itself was a starter to create a dialogue. With new standards coming, debate and experimentation, as well as criticism and feedback is crucial.

Patay said that fintech innovation sources quality data (increasingly through AI) which helps trust. A silo approach is not helpful, fintechs need to coordinate and collaborate to improve efficiency. An open dialogue with market participants will reveal which regulations work and which do not. PSD2 is an example of this working based on interactions between market participants and regulators. GDPR has been such a drain on EU companies as it is so stringent – we should be bold enough to make a change based on the evidence.

The challenge is to enable collaboration between lawyers and architects so that consumers are protected, data is accounted for, while innovation and competition are well balanced. The customer outcome is the primary consideration.

400 million customers available in the EU should really drive our innovation.

Lindh Possne added that regulation requires explanation especially about why it is important as this is not always very evident to a developer or a consumer.

The panel discussed the prospects for new regulation ahead. Patay touched on CSRD and sustainability data, commenting that what gets measured and managed will drive more action where this data has been disclosed. But there has been pushback on this as a regulatory requirement, and delays in the EU might become permanent. Reliefs and simplification look inevitable as the first iteration was too burdensome.

Gailane stated that in such challenging times new innovation goes hand in hand with regulatory change. Real-time payments wrap in fraud, the EU AI Act and GDPR reforms. This requires a lot of lawyers!

How can ROI be generated? Lindh Possne said that it is very hard to predict but the goal is to improve competition while simplifying regulations and reporting. More harmonization is needed for the sustainable finance framework.

Krepsta felt we are at the peak of regulation right now and the cycle is set to see simplification and deregulation. The different regions will determine how severe the decline is, with the US at one end of this range. The newest big areas are those like instant payments and MICA. The 400 million customers available in the EU should really drive our innovation.