Denis Beau: Financial markets - driving innovation and connectivity
Opening remarks by Mr Denis Beau, First Deputy Governor of the Bank of France, at the Paris
Financial Seminar, co-organised by the Hong Kong Monetary Authority and Paris Europlace,
Hong Kong, 16 January 2019.
* * *
Ladies and Gentlemen,
I am very pleased to open this seminar jointly organised by Paris Europlace and the Hong Kong
Monetary Authority (HKMA). A new year is usually the time when we regain confidence in the
future and in our collective ability to prepare for it.
***
However there are many uncertainties weighing on the global economic outlook.
In Europe, there are still many uncertainties about the outcome of Brexit negotiations and the
vote over the withdrawal agreement. Caution requires that we all be prepared for a no-deal
scenario. Public authorities and most importantly market participants have all prepared serious
contingency plans to address and master the cliff-edge risks associated with such a no-deal
scenario. As a result, we can expect that those risks will be appropriately managed, without
financial stability implications, should such a scenario occur.
Outside Europe, global trade tensions are also generating additional uncertainties. Protectionism
can indeed be a temptation, but in my view it should not be an option. Let's be clear: our
economies are increasingly integrated, and research conducted at the Banque de France
suggests that a rise in protectionism on a large scale (i.e. a generalised trade war scenario)
would have a negative impact on global growth.
Yet these uncertainties can be turned into opportunities and I would like to emphasise
that. It is worth noting that EU Member States remained impressively united behind their
negotiator, Michel Barnier, during the Brexit talks. This unity must now be directed towards
achieving an ambition: completing and strengthening the economic and monetary union.
This period of uncertainties actually reminds us that bilateral and multilateral
cooperation are quite valuable, as they are a common wealth enhancer, especially when
the issue at stake is financial regulation and financial stability. At the end of 2017, central bankers
and supervisors reached a very important agreement on the Basel III post-crisis regulatory
reforms. This agreement must now be implemented in various jurisdictions to further increase
the soundness of the banking system. Since the great financial crisis, other issues have
emerged. Cyber-risks have risen significantly over the last few years and the financial sector
remains a primary target. The surge of crypto-assets is another challenge for regulators given
the risks they pose for consumer protection and anti-money laundering. To address these risks
adequately, the digital and global nature of crypto-assets calls for an international approach.
***
Cooperation is all the more necessary as the major financial centres, including Paris and
Hong Kong, are highly interconnected.
I believe that Paris today has all the attributes necessary to become the pre-eminent
financial trading and financing hub for continental Europe. Some of the world's biggest
banks, asset managers and insurers are already preparing for life after Brexit and steering their
European operations away from London to our capital. Paris is already home to four of the eight
global systemically important banks in the euro area, in addition to being number one in the
region in insurance and asset management. Recent regulatory initiatives have made Paris even
more dynamic. Capitalising on the reform of Negotiable European Commercial Paper (NEU CP)
in 2016, a number of very innovative projects have been launched: for instance, the French
telecoms company Orange and the fintech SETL have jointly set up a new central securities
depository (CSD) called ID2S for the NEU CP market, using blockchain technology.
Paris is also at the heart of cross-border initiatives, making the European financial market
more integrated. The market exchange operator Euronext is continuing to expand its federal
model and in November 2017 acquired the Irish Stock Exchange. The CSD Euroclear is also
committed to fostering common infrastructures, and is even looking beyond Europe with
partnerships in the United States with DTCC or in Asia thanks to Bond Connect.
Building on this comprehensive financial ecosystem, Paris has also been one of the
principal supporters of the renminbi's move towards internationalisation. As of today,
Paris is indeed the leading continental European centre for deposits and bond issuances in RMB.
This support was embodied and exemplified as early as 2014 with the signature by the Banque
of France of two memorandums of understanding with the HKMA and the People's Bank of
China.
***
Cooperation will also prove invaluable in the face of the uncertainty caused by structural
challenges.
The digital revolution is being fuelled by a
A first structural challenge is the digital revolution.
wave of cutting-edge technologies, but also by the surge of new players. This new competition is
being driven by fintech start-ups, but also, more importantly, by tech firms that have started to
expand into the financial sector. Here in Asia, you can testify as to just how rapidly big tech firms
can impact the financial sector. While ensuring a level playing field between competitors, our role
as a central bank and supervisor is to guarantee that the digital revolution eventually delivers on
its promises regarding increased security and efficiency. At the same time, incumbents should
be prepared to adapt. Their business models are being challenged by the unbundling of financial
services and by increasing customer expectations in terms of responsiveness and autonomy.
The answers are not easy and cannot be uniform, but I expect that only the most digitally agile
financial companies will eventually prove financially resilient. Against this background, France
has many assets that can make it a leader in digital innovation in Europe, and the Banque de
France is committed to playing its part in this regard. Through its Fintech Innovation Hub, which
has welcomed over 400 innovative players since 2016, the Banque de France promotes active
and open dialogue with all market stakeholders, with the aim of building streamlined regulation for
digital innovation.
The Banque de France is also committed to leveraging new technologies for its own digital
transformation. We are already running an interbank blockchain called "MADRE" to automate the
generation of creditor identifiers. I am convinced that by conducting their own experiments,
central banks and regulators are more capable of designing relevant policies and regulations for
digital finance.
***
A second structural challenge is climate change, which is perhaps less tangible than the
digital revolution but certainly no less significant.
The transition to a low-carbon economy requires shifting thousands of billions of dollars from
carbon intensive industries. As a result, beyond green bonds, we also have to develop new
financial products to bridge this green finance gap. I am thinking of green securitisation, green
covered bonds, and green loans accessible to individuals, SMEs and start-ups. France is at the
forefront of this challenge. Four out of the world's top ten green bond book-runners are French
banks. France is among the top three green bond issuers. This trend is being supported by
public action: a law has been introduced requiring investors and listed companies to disclose
their climate-related risks; the French State issued the largest green sovereign bond in 2017.
We also believe that central banks and supervisors must play their part as, in the long run,
climate stability is one of the main determinants of financial stability, which is their mandate. This
is a shared conviction. At the One Planet Summit in Paris in December 2017, the Banque de
France, with the support of other central banks and supervisors, launched the Network for
Greening the Financial System (NGFS), which now comprises some 30 central banks,
supervisors and international organisations, including four Asian members, and will certainly
attract more in the coming years.
***
Let me now conclude by quoting Nassim Nicholas Taleb, the famous author of The Black Swan.
He once wrote that uncertainties can be like the wind which "extinguishes a candle and
energises fire", and added the following: "You want to use them, not hide from them. You want to
be the fire and wish for the wind". My wish is that the ongoing uncertainties will become the wind
that deepens our bilateral and multilateral cooperation. On that hopeful note, I wish you a very
Happy New Year and for the time being an inspiring and fruitful conference.