By: FIBA on FinTechs: “We Expect the Regulation That Will Come to Leave Enough Space for Creativity to Allow Innovation”

Miami, July 25th 2017 – FIBA is the voice of the international banks operating in the US, and for years has called the attention of the regulators to the fact that the more abundant and restrictive regulation is making the environment more hostile for the once solid and flourishing international financial services industry. Only a few weeks before the celebration of CL@B 2017, the leading conference focused on Financial Technology in the Americas, David Schwartz, President and CEO of FIBA (Florida International Bankers Association), says: “Although robust regulation is needed to combat money laundering and terrorist financing, and a greater transparency is good for everybody, the continuous changes in the regulation and the addition of more complicated requirements take an enormous amount of resources from the firms, that not all of them can easily afford.”

In the last few years, we have seen some institutions exiting certain jurisdictions, or raising the minimum assets maintenance requirement for an account. And in every trade association meeting and conference complaints are expressed about the enormous amount of resources devoted to compliance and technology in order to keep pace with the changing times. The industry is awaiting the ease on regulation that President Trump announced, while technology continues to advance at a rapid pace.

“The financial services industry needs to become digital in order to meet the expectations of the tech savvy customer. Large corporations usually take too long to advance, in part because of regulatory requirements that slow change, and in part because they are better at traditional banking. That is why we have recently started to see acquisitions of FinTech companies, much more agile and innovative, by big banking corporations.” He adds.

“The financial services industry needs to become digital in order to meet the expectations of the tech savvy customer.”

Innovation needs space to happen, needs easy procedures, and certain freedom. But according to David Schwartz: “It is not that FinTechs are not regulated. It is only that there is no specific regulation for `FinTechs´ yet. The meaning of FinTech is very broad, including startups with two entrepreneurs and large corporations such as PayPal, and the regulation they must comply with is different in each case. But, of course, they cannot do whatever they want to.”

He adds: ”Many FinTechs are born with the ambition to be sold to a big corporation that would not buy something that is not in compliance, however you cannot regulate something before it exists and FinTechs as a whole are still emerging. First comes the reality, then comes the regulation. We expect the regulation that will come to leave enough space for creativity to allow innovation.”

 

About CLAB 2017
The CL@B Annual Conference, organized by the Florida International Bankers Association (FIBA) and the Latin American Banking Federation (FELABAN), is the largest Latin American technology and innovation event featuring networking and learning platforms for the financial industry. The conference is a traditional bridge connecting Latin America and the world.
Its 17th edition will take place in Miami between August 30 and September 1, 2017.
www.felabanclab.com

About FIBA
Founded in 1979, the Florida International Bankers Association is a trade organization that provides comprehensive support to the global financial services industry through training, conferences, and advocacy. Its members include some of the largest and most influential financial institutions and organizations in the world. FIBA is recognized by the financial services industry, regulators and authorities as a center of excellence for its knowledge and experience. www.fiba.net

About FELABAN
The Latin American Banking Federation is a non-profit entity that currently covers more than 500 regional banks and was created in Mar del Plata, Argentina, in 1965 by banking associations and other agencies of 19 Latin American countries. www.felaban.com

 

For additional information or interviews:
Rocio Lopez
Communications & PR
FIBA
Rocio33130@gmail.com
T: (305) 215 4837

By: MIT’s Michael Casey on Blockchain: “Processes Could All Be Disrupted”

Michael Casey, Senior Adviser of  the Digital Currency Initiative at MIT Media Lab, will be participating in the session: “Banking on Blockchain: The Status and future Potentials of the Blockchain Technology for the Financial Industry,” at CL@B 2017. He shared some of his insights on the disruption of the financial services industry, financial inclusion, cybercrime, money laundering, hacking, the obstacles to unlock its potential and the MIT Media Lab’s new Digital Currency Initiative.

How will blockchain technology behind bitcoin and other digital currencies disrupt the Financial Services industry?

A lot of the work being done right now by financial firms is going into back-office and interbank applications of blockchain or digital-ledger technologies. This could help streamline reconciliation processes that occupy a lot of time and resources in the financial sector. Processes such as securities settlement and clearing, custodial services, escrow management, share and asset registration processes could all be disrupted as institutions shift to a shared-ledger structure in which trade, payment and settlement data is updated in real-time. But although those are the areas attracting the most R&D, I think there are more powerful financial applications to come in the customer-facing aspect of the industry.

If the blockchain can be used to create more reliable, tamper-proof records of assets and systems for measuring personal reputation and identity, the hope is that the barriers that deny billions of people access to credit and other financial services will be be lowered. We may see new systems of trade finance, for example, or blockchain-securitized loans, decentralized credit unions or mutualized insurance programs.

Will it help reduce or enlarge cybercrime?

There’s no doubt that bitcoin is currently being used by cybercriminals. The pseudonymous addresses make it easier to cloak’s one personal identity, which is why it being used to demand digital extortion payments — for example, the spate of recent demands for payment to decrypt frozen files in ransomware attacks. But it’s also risky for cybercriminals to use the bitcoin blockchain because all transactions are published on a fully public, traceable ledger, which law enforcement agents are increasingly using to track criminals. Once the attacker cashes out into fiat currency via a regulated exchange, they can be caught. Of course, criminals will use unregulated exchanges to obtain dollars and other currencies to avoid detection but these aren’t very liquid and make it difficult to move large amounts of money. There are also sophisticated encryption techniques for criminals to further cover their tracks and obfuscate their transactions, but with Big Data and network analysis, the ability for law enforcement agents to overcome these barriers and track them down is also increasing. In effect, there is a cat and mouse game in play. It’s not clear that bitcoin and other cryptocurrencies are always going to be easily used by cybercriminals as their payment method.

Will it turn money laundering easier?

For the same reasons cited in the question about cybercrime, I think money launderers will find that the traditional blockchain is not a good place to hide money flows. If truly anonymous, encryption-dependent digital currencies like Monero are used, perhaps it will be easier for money launderers to hide their tracks, but there is again another problem of liquidity in these markets. It’s hard to buy in and out of them without losing money. With bitcoin, there are movements now to use the system to better monitor flows of funds across borders and build sophisticated anti-money-laundering (AML) compliance models on top of it. I believe that the right combination of blockchain-based AML and lower standards for KYC (know-your-customer) can give more people access to affordable cross-border payments but also provide protection against money laundering and other forms of illicit finance.

What about hacking?

Other than as a payment vehicle for cybercrime (see previous answers), I don’t believe bitcoin and blockchain technology makes hacking any easier, and if used properly, can provide great protection against it. Yes, people have hacked bitcoin wallets and it’s very important that new security systems be developed to protect individuals’ holdings of bitcoin, but bitcoin itself has never been hacked. The ledger has survived without anyone being able to manipulate it. That’s because the distributed nature of the network and the high cost of computation required to take it over create a massive barrier to attack. The integrity of this ledger, then, suggests that similar design concepts can and should be applied to the management of all sorts of computer systems. Currently, our data resides in giant, centralized pools controlled by single-gateway institutions that spend enormous amounts of money building firewall protections of these “honeypots” of information and yet they’re constantly being hacked by outsiders. That’s because there’s a huge incentive and a relative low cost to carry out such centralized attacks. If data is spread to the edges, however — if it is broken up into fragments and controlled by individuals and different nodes in a distributed structure that, like bitcoin’s blockchain, can’t be overtaken — the cost-vs-payoff is considerably higher for an attacker. Since each node has to be separately attacked with only a small payoff in each case, there’s a disincentive to engage in this activity. So, a blockchain model may well help reduce hacking rather than increase it.

Will they forge financial inclusion?

That is the hope, yes. The costs of managing trust relationships within the current, convoluted global financial system, with its multiple different entities, each managing their own ledgers, makes it unprofitable for banks to service low-income people. Know-your-customer rules and other requirements also mean that the “unbanked” — whose numbers run to 2 billion adults, according to the World Bank — are locked out of the digital economy, with cash their only medium of exchange. Bitcoin and other digital-currency solutions should, in theory, allow them to send money remotely, anywhere, at a significantly lower cost. Financial inclusion is an important goal of this technology — and some of its spinoffs, including plans for digital fiat currencies issued by central banks, are squarely aimed at achieving it.

What are the obstacles it still faces before its potential can be unlocked?

Bitcoin and other blockchain currency solutions need to be able to scale more easily, and for that there needs to be a smoother governance of its system to allow changes to the protocol. Work is being done on solutions that would allow many more transactions to run on bitcoin, but the challenge lies in getting everyone to agree to those changes. For consumer-facing solutions, there will also be a challenge in getting people used to using these technologies. Work needs to be done on creating user interfaces that make it seamless and easy to use, and which allow for efficient transfers into and out of digital currencies into traditional currencies. . The concept of the blockchain, much like TCP/IP and other Internet protocols, needs to be shifted to the background; people don’t need to understand how it works to use it. However, they do need their entry points into such a system to be easy to use. In the same vein, more robust, reliable and easy-to-use approaches to key management need to be developed. The ordinary person in a developing country is not going to want the responsibility of keeping track of and protecting access to private keys that control all their wealth. Easy-to-use “multisignatory” custodial systems in which a third-party provider provides protection but is unable to abscond with the customer’s assets need to be rolled out and developed.

What is the MIT´s Media Lab’s new Digital Currency Initiative?

The DCI is working to develop the core infrastructure and applications associated with digital currencies and blockchain technology to help migrate the financial system and the Internet economy to a more open, free-access, peer-to-peer model. To that end, we are working on various projects. For example, developers are building out the Lightning network, which promises to dramatically increase the scale of transactions in public cryptocurrency networks such as bitcoin and to achieve interoperability across blockchains. We are also working with central banks to develop a prototype for a new system of digital fiat currency. Meanwhile, “higher up the stack” of applications, others are working on blockchain-based systems of asset registries, to help farmers, businesses and households in the developing world more easily obtain collateralized credit. And I’m working on developing blockchain-managed solar microgrids to unlocking innovative financing solutions that could rapidly expand the installation of locally owned, decentralized renewable energy systems.

About Michael Casey

Having closed a career as a journalist, Michael Casey is an author/journalist, public speaker, media commentator, blockchain technology adviser, and consultant who now researches and works on projects harnessing the blockchain technology that runs bitcoin. After 18 years at The Wall Street Journal, he is now at MIT Media Labs’s Digital Currency Initiative. He also consults for businesses on the challenges and opportunities in this emerging technology, and is an advisor to The Agentic Group on several blockchain projects worldwide.

By: The FinTech Effect and the Era of Banking Disruption – Presented by Marco Antonio Cavallo

Marco Antonio Cavallo, founder and analysis director of CGN Research & Advisory Group, shared his view on the FinTech effect and the era of banking disruption, with a group of more than 500 virtual attendees from 30 countries. These are all conclusions from the online conference organized by FIBA.

Key Takeaways:

  • Financial technology, or FinTech, will boost the new business model for financial services.
  • The benefits of associating with FinTechs are obvious for the banking industry.
  • FinTechs (or financial technology companies) should understand scalability.
  • It is not about technology, but about what can be created with it.
  • There is a significant gap between the expectation of the digital consumer and the offers from traditional financial institutions to their clients.

Cavallo considers that the financial industry has been historically slow to innovate, so for traditional banks partnering with a smart startup in order to use their leading edge technology can be a quicker way to create a new competitive advantage in an increasingly digital market. “The banking industry should see the big picture and aptly agree to the long-term impact of an association with a FinTech company or its acquisition,” he said.

“There is no need for the banks to deeply understand the underlying technology in order to realize that the original rules of the business remain the same. The banking industry is in need of creative, talented individuals who can synchronize the new technology with the business goals of the industry; because the new digital consumer needs faster and more convenient mobile and online services,” said Cavallo.

Lastly, he noted that the relatively poor performance by most of the traditional banking organizations on customer-driven digital accounts, the opening of said accounts and the cross-selling process involve an opportunity for those institutions that wish to grasp the potential of becoming “Digital Banks.”

Cavallo is an expert, columnist and blogger of advanced strategies of information technology at CIO.com and member of the IDG Influencer Network. He will be participating in CL@B 2017, the 17th Financial Technology and Innovation Conference, organized by Florida International Bankers Association (FIBA) and Latin American Banking Federation (FELABAN) in Miami between August 30th and September 1st.

By: Silvia Pavoni, Economics Editor for ‘The Banker,’ on Women in Technology

We spoke with Silvia Pavoni, Economics Editor for The Banker, regarding the role of women in tech firms, the reach of FinTech’s disruption in the workforce, how technology helps women in Latin America and how governments are playing a role in including women through technology. Silvia oversees The Banker’s coverage of Latin America, international financial centers, wealth management capital markets, trade finance and financial inclusion. She has traveled extensively in the region and volunteers at WILL (Women in Leadership in Latin America).

Silvia will moderate a general session called “Women in Technology” at CL@B 2017. Panelists include Laura Gaviria Halaby, Global Head Digital Acceleration, Citi; Mia Nygren, General Manager, Spotify Latam and US; Mary Spio, CEO and Founder, CEEK – virtual reality; and Francesca de Quesada Covey, Head of Product Partnerships, Latina America, Facebook.

Here are some of Silvia’s thoughts:

“There is plenty of research highlighting typical differences in leadership styles between men and women, and how including more women in decision-making roles seems to correlate with better financial indicators. In the end, to me, making sure women can access a specific job market or progress in their careers, should they seek to, continuing to reduce bias and prejudice, is just the right thing to do.

“As far as I can tell, there is still no substantial evidence pointing in this direction.”

It will certainly be interesting to see if the fintechs setting out to disrupt the finance world can also modernize the gender composition of its workforce. As far as I can tell, there is still no substantial evidence pointing in this direction.

Technology would certainly help Latin America’s wider population in accessing financial services, and many other services for that matter. With women typically running households, I can only see benefits in making sure technology translates in wider social and financial inclusion. Government-led programs, in partnership with the private sector, to improve financial inclusion would be beneficial; it’d be great to see more of them across Latin America.”

By: Ocean Bank’s Sergio Pinon on Cybersecurity: “Number One Protection Is Employee Training”

Hackers have become more professional and expert in breaking barriers established via traditional security measures. Increasing digitization and connectivity has triggered an increase in incidents of data breaches, compelling banks to strengthen their security systems.

Sergio Pinon, SVP& Director of Security of Ocean Bank, believes Financial and Government sector are the most targeted industries by hackers. In his words, for the Financial Industry “This has become the biggest threat for the past two years and growing”. Sergio believes number two is conducting periodic risk assessments of different types, but number one protection is employee training. Conduct regularly security chats with the customers on Cybersecurity is also something he suggests.

Sergio Pinon will be moderating the session “Cyber Security Trends” to be held in CL@B 2017, the 17th Financial Technology and Innovation Conference, organized by Florida International Bankers Association (FIBA) and Latin American Banking Federation (FELABAN) in Miami between August 30th and September 1st.

What industries are the main targets of hackers?

Financial and Government sector.

How big is the thread of a cyberatack to the Financial Services industry?

This has become the biggest threat for the past two years and growing. The financial impact is over 2 billion dollars a year. Average cost of a breach is around 4.5 million dollars depending on the size of the institution and system or data compromised.

How do Financial Services firms protect themselves?

Number one is employee training due to the vast amount of breaches as a result of email malware, Number two conducting periodic risk assessments of different types such as External Penetration Tests, Internal Vulnerability Assessment, GLBA Risk Assessments, Cybersecurity Risk Assessments, monitoring system log activity on a 24 X 7 timeframe, and staying informed of vulnerabilities.

What is the investment in cybersecurity devoted to?

Training, expert hiring, governance and tools to identify, prevent, detect and respond to a threat.

What is the goal of a cyberatack? What do criminals look for?

Mainly for financial gain and stopping operations.

Do clients show their concern on it?

Absolutely and it could create a reputational risk as far as losing customer base if the institution suffers a breach.

How does a firm show clients it is ready for a cyberattack?

By asking their Security Experts to speak to those who are concern and also conduct regularly security chats with the customers on Cybersecurity.

How do clients accept the new security procedures that usually turn operations more complicated when part of their requests are simplicity, easiness and a good client experience?

If well explained, usually very positive. Again it leads to employee training to know how to deal with customer concerns and provide a very positive explanation on the matter.