are both network industries and share many similarities. eu regulation in payments, of which the payment services directive 2 ( psd2 ) is the most recent case, is similar in spirit to what was done in telecoms earlier. regulation and de - regulation are needed to enable competition and innovation. this means opening markets to new entrants and reducing monopolistic market power. it also means that common standards are needed. the goal should be better and cheaper services for consumers and households. everyone should have access to financial services at reasonable prices. but psd2 is not only about payments. it affects the financial industry more widely, since payments and other financial services are intricately connected. for banks, payments are the most frequent touchpoint to their customers. psd2 forces banks to open their payments infrastructure to all kinds of service providers. customers are free to choose, and will retain control of, who can access their accounts. 3. 2 new types of risks – regulatory and macroprudential challenges let me next consider examples of risks, which need special attention as the digitalization process goes along. competition and financial stability first, it is essential to facilitate competition, as i described above. but we must also mind the 3 / 5 bis central bankers'speeches potential trade - off between competition and stability. it is much debated and researched. in particular, when profit margins get tighter, the incentive for risk - taking may rise. one way to control such adverse incentives is to insure sufficient capitalization of financial institutions, so that their owners have sufficient ‘ skin in the game ’. in this regard, regulators have done much after the global financial crisis. but supervisors need to stay constantly alert. cyber security second, there is the issue of cyber security. the european financial system is highly interconnected and interdependent. this constantly keeps the potential for financial contagion at the center of financial stability considerations. but the highly interconnected network of institutions also implies that cyber - attacks may pose an increasingly serious concern to the eurosystem ’ s financial stability. the issue with cyber - attacks is further accentuated due to its dynamic, constantly evolving nature and because cyber - attacks are borderless. we may still lack sufficient pan - european law enforcement capability to fully monitor the potential for cyber - attacks. however, work has been started to enhance cyber resilience of the eurosystem. for instance, promoting cyber best practices for financial market institutions, conducting cyber surveys to monitor progress, and

recession ; second, the european refugee crisis. these amplified citizens ’ fears and frustrations towards the elites and the immigrants, thus further feeding to populist tendencies. overall, i see three stages in the development of populism. the first stage is recognition of protest or issues. in the second stage, there are increasing demands for policy change. and in the third stage, there are actions for a regime change – for more illiberal and authoritarian. in many advanced liberal democracies, we are normally in stage two. 5. since economic policies of populist parties seldom provide real solutions, and the impact of populists on political institutions can be erosive, the liberal democracies need to find ways to contain the rise of populism. otherwise, we face both fragmentation and un - governability. slide 6. vote for the broad political centre in finland to illustrate this, in finland the combined share of votes for the three main centre - left and centreright parties has declined from a steady 65 – 70 % up until the global financial and economic crisis to below 50 per cent in the most recent elections. at the same time, the share of votes for the largest party has declined from roughly 25 percent to less than 20 percent. more generally in the advanced liberal democracies, the rise of populism has led to an increased fragmentation of the political system. it has made governing effectively harder, and also made it more difficult to form functioning coalition governments and to carry out structural reforms. another notable consequence of the rise in populism is its impact on the policies pursued by the mainstream parties. in some / many cases, the mainstream parties have shifted their policies towards the populists ’ agenda in fear of losing many more of their voters. so what can the liberal democracies do to curb or accommodate populist pressures? in theory, the required policies are simple, but modern societies have shown little capacity to be able to respond in the correct way. slide 7. agenda for reform in europe first step, reinvigorate economic growth. second, and equally important, ensure that fruits of growth are widely shared. this includes not only that individuals displaced by technological progress and international competition are assured sufficient social support but also assistance 4 / 6 bis central bankers'speeches to seek alternative ways to fulfil a meaningful role in society. as underlined e. g by the imf, the big changes affecting our economies and labour markets may require