digital transformation of the retail payments ecosystem cyber security – the balance between cooperation and regulation keynote speech by fabio panetta, deputy governor of banca d ’ italia at the joint ecb and banca d ’ italia conference rome, 1 december 2017 information and communication technologies play a fundamental role for people, businesses and the public sector. digital transformation is modifying the economic system and the whole of society at unprecedented speed. innovation is having a powerful effect on the financial sector. the value chain is becoming more complex, and the participation of non - financial providers is increasing. the tech giants as well as the new fintech start - ups are expanding the supply of innovative services to a broad and diverse customer base through new business models. as a result, confidence in the financial sector is no longer based on bilateral trust between customers and service providers but is dependent on the governance of digitalization and especially on the reliability and safety of the products offered. emerging risks in the digital ecosystem the increasing role of digital platforms is creating enormous benefits for users. at the same time it is offering ill - timed advantages for new groups of hostile agents, such as hacktivists, fraudsters and criminal and terrorist organizations. by exploiting the vulnerabilities within cyberspace, these agents may endanger the provision of digital services or disrupt critical infrastructures. the new risks are exacerbated by the complex network of interconnections that forms the digital ecosystem : the ‘ internet of things ’ is exploding and the number of interconnected devices is expected to grow at an unprecedented pace, to more than 200 billion in 2020. 1 the area at risk is expanding enormously. any weakness in security controls, any vulnerability in technology may offer an entry point for cyber attacks. in the financial sector, cyber attacks can create disruptions that propagate instantly and globally with effects that are hard to predict. recent cyber attacks, like the one against the central bank of bangladesh, exemplify the vulnerabilities – of both process and technology – that affect interbank payments and core financial infrastructures, which were once considered less exposed to cyber risks. as the financial stability board has emphasized, certain cyber attacks 2 show that the vulnerability of financial institutions is a systemic issue, although it is unlikely as yet to represent a real threat to global financial stability. these attacks were a wake - up call for regulators and financial authorities, emphasizing that the safety of cyberspace is not just a prerequisite for the reliability of financial services but also

to earn a return on their capital. in this context, i would like to refer to the banks'profits. it is quite natural to regard the banks'profits in nominal terms of billions of shekels, but one should also examine the banks'profits in relation to their capital, in other words, one should look at their return on capital. in these terms, the return on capital for the israeli banking system is not particularly high, and even low in international comparison. the return on capital for the banking system in 2005, for example, was 14. 5 percent, compared to an average 15. 4 percent globally. finally i would like to ask the knesset to push forward with government - sponsored legislation on the supervision of banking fees by the supervisor of banks as soon as the bill is presented, which i hope will be soon. this is an important bill, and every effort should be made to have this legislation passed.