European Central Bank to ask permit-seeking ‘fintech banks’ for greater capital buffers and liquidity

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Fintech firms seeking banking licenses in Europe may have to pay more from now on.

Looking at the risks involved in dealing with fintech firms of diverse hues and colors, The European Central Bank has decided that it may ask the firms to pay up bigger capital buffers and larger liquidity for processing the licenses.

According to ECB, the business model in which the production and delivery of banking products and services are based on technology-enabled innovation, the risks and unknown factors related to the applications of ‘fintech banks’  have increasingly become a gray area.

With this in mind, the central bank has set out the draft guidelines on the licensing process.

Owing to the volatile customer base which is more likely to switch to rival providers, a greater security consideration is being insisted from the Fintech banks community applying for business licenses.

They may also need more capital because they are entering a crowded market and so are likely to employ aggressive pricing strategies and could also need to switch business models.

Other factors considered include IT-related risks for fintech banks, arguing that their reliance on technology and outsourcing, including through cloud computing, makes them vulnerable to cyber attacks.

The Central Bank also insisted that the fintech companies must have people with strong technology and technical skills and knowledge on their management teams, including a Chief Technology Officer, be appointed to the Executive Boards.

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