The flourishing data economy, the emergence of FinTech and BigTech firms in the traditional banking space and the growth of the crypto-assets market all promise a new era for the financial industry, bringing new competition, improved client service and innovative financial products. More fundamentally, these trends could also alter incumbent players’ business models and even financial market structure, says Deutsche Bank’s second edition of its white paper, “Regulation driving banking transformation”, which includes contributions from leading experts across the banking, technology and legal industries. Regulations will play a key role in shaping the face of this newly emerging landscape, defining the trajectory of change.

“The disruption enabled by new technologies continues its decisive march into financial services, whether it be in the shape of new players driving new business models, new products, or increased embrace of the power of Big Data,” says Thomas Nielsen, Head of New Ventures, Corporate Bank, Deutsche Bank. “Navigating and embracing such potentially tectonic shifts is never easy – but existing processes and rules are being challenged by changing consumer behaviors and looking the other way with the hope that this is a fleeting trend is a a mistake that financial institutions and regulators cannot afford to make.”

The first edition of the paper, released in October 2018, outlined the regulatory environment pertaining to the use of artificial intelligence (AI), open application programming interfaces (APIs), cloud and blockchain.

The latest edition notes that the capabilities of these technologies will not be exploited to their full potential without rich and relevant data sets, nor without clients having sufficient trust to share their data with their service providers. While Open Banking initiatives have helped greater data sharing in the financial industry, they omit from scope data stored with other private companies which could otherwise enrich the analytics and, ultimately, the provision of banking services.

“As this issue becomes more prominent and important, regulators will likely face demands to lift such barriers – in a manner that ensures the protection of clients’ rights and the security of their data. Getting this right will require a delicate approach, and the creation of a regulatory environment that builds trust in data sharing and usage,” comments Polina Evstifeeva, Head of Regulatory Strategy, New Ventures, Corporate Bank.

The paper assesses the potentially game-changing implications of BigTech companies, which are advanced in consolidating, analysing and using clients’ data, now turning their attention to financial services. While this drives competition, innovation and improved client services, the very distinct business models employed by BigTechs in financial services (which rely on the “data- network-activity loop”) also trigger regulators’ vigilance around potential gaps, particularly when it comes to competition and data protection rules.

The third transformative trend assessed in the paper is the evolution of the crypto- assets market. Although the volumes of initial coin offerings (ICOs) or payments incrypto-assets still pale in comparison to traditional methods of capital-raising or payments facilitation, forward-thinking regulators have already made their moves to provide much-sought-after regulatory clarity to set the path for the market’s development.

The paper concludes that regulation will play a key role defining the trajectory of change in this emerging landscape.