The fourth principle is creating regulatory framework that promotes agility and innovation while preserving financial stability. Regulators must continually review and ensure that their governing frameworks remain relevant in the context of the fast-changing digital world. Outdated and inflexible laws and regulations need to be amended accordingly. With the advancement of technology, financial innovations usually start off small and scale up quickly. Regulators must therefore keep in mind the concept of proportionality, allowing themselves to be more tolerant towards low-risk financial activities and more scrutinizing towards activities that might pose risks to the financial system. We also need to keep in mind that financial products and activities are expanding across jurisdiction of different agencies. Regulatory framework must shift from entity-based regulations, which have formed the core of our regulatory framework, to activity-based ones. Most importantly, the regulations must be agile and able to adapt to the everchanging environment of the digital world. To give you an example, our regulatory sandbox scheme that was introduced less than two years ago might be too slow and out of sync with market requirements today. In response, we have decided to allow financial institutions to develop their own sandbox and move from the approval concept to registration concept, with a view to reducing time-to-market and increasing flexibility for innovation and investments. We have also amended our regulations governing banks’ IT-related services with the aim to facilitating 4  partnerships between banks and tech companies, and enhancing connectivity between banks and the digital world.

This crisis has highlighted the vulnerabilities that may emerge in a monetary union lacking common fiscal and financial policies. It is thus worth considering a greater transfer of sovereignty in these areas. On the home front, the challenges the Spanish economy faces are enormous. The latest episode of the sovereign debt crisis is severely impacting agents’ confidence and the economy’s financing conditions, placing it in a position of extreme vulnerability. Following two consecutive quarters of negative growth, our economy is once again in recession and the prospects of recovery are not immediate. Moreover, the prolonged cyclical weakness is preventing swifter headway in redressing public finances and in reducing private-sector debt, and casting doubt on the resilience of the financial system. That has triggered tensions on the debt markets and activated perverse feedback loops. Lastly, the Spanish economy risks seeing its capacity to obtain external funding severely blocked. While in the short run this does not actually constrain ordinary funding flows (given the banking system’s possibility of resorting to ECB funding), the prolongation of such a situation will be extremely harmful in the medium term. Spain is in this situation despite the fact that its authorities have implemented far-reaching reforms in recent years to resolve the inefficiencies in its economic functioning, to correct the serious deterioration in public finances and to redress and restructure the financial system, in order to restore financing flows. Resolving these problems is taking longer than expected, but that should not lead to reform fatigue.