Check against delivery.

Ladies and Gentlemen,

Allow me to be the next to express my warm welcome to the "FATF FinTech and RegTech Forum". The focus of this event is more topical now than ever before, and judging by the agenda we therefore have exciting debates in store for us over the next two days. Digitalisation and certain innovative business models in the financial industry present a challenge for everyone here in this room. Sometimes they mean we must venture far out into the open sea without knowing where or when we will next hit treacherous waters. This must be similar to how explorers such as Christopher Columbus felt when setting out on their expeditions. Their nautical charts could only be created after the journey, perhaps as Columbus sat at his desk and recorded on paper places that had previously been known only as terra incognita.

Whatever you might think of his actions overall, Columbus's geographical achievements cannot be denied. While we are not required to discover any new lands, the most recent developments in the financial sector do mean that we, as regulators, must occasionally make a journey into the unknown before we have had the chance to map out sufficiently well-grounded standards.

In doing so, we must keep pace to ensure that we are able to learn of and evaluate new developments at any time and thus react promptly.

When the FATF was established in 1989 with the goal of setting standards at a global level to combat money laundering, it too was faced with a completely empty chart that had to be filled with regulatory content. In comparison with Columbus, the FATF representatives did have a decisive advantage: unlike the explorer, they were not restricted to recruiting their teams from Spanish prisons because nobody else would have been prepared to get involved in such a dangerous journey. Hiring is rather less burdensome in the 21st century.

Not least because of their competence in the field, the FATF experts were able to adopt forty recommendations for combating money laundering and terrorist financing, and these recommendations form the basis for national laws in almost every country in the world. This may have required considerable effort at many points, but as even Columbus knew: "reliable information is a must for successful planning". The FATF has thus made significant contributions in recent years to creating a more transparent and more secure international financial market.

At present, developments such as fintech and regtech and new possibilities for virtual payments – such as distributed ledger technology – are setting a challenge for the regulatory community. This is a trend that I welcome wholeheartedly. It is a good sign of a functioning financial system if young undertakings with new ideas can be launched and bring to market previously unknown technologies. This reflects not only a spirit of exploration, but also changing customer needs in the digital age.

Of course, we should be careful not just to look at new technologies through rose-tinted glasses; it goes without saying that they also harbour risks. These include both cyber and IT risks, which are now some of the most significant operational risks, and strategic issues that are changing the value chain for financial services providers. But we mustn't allow ourselves to be frozen to the spot in awe of such risks and thereby forget the opportunities that digitalisation offers. If the great explorers of the Renaissance had acted like that then geography lessons would still be based on a disc and not a globe.

As regulators, we have to keep an eye on the opportunities and the risks of innovations in equal measure. Regulation is a network of requirements intended to protect the integrity and stability of the German financial market and, in doing so, the international financial system as well. These requirements may also apply to new, innovative undertakings, depending on their business models, meaning that they require authorisation from BaFin to conduct business and are subject to our ongoing supervision. As far as we are concerned: "same business, same risk, same rules". And that is how we operate – always keeping in our sights, of course, the principle of proportionality. We won't put any safety fences up around established institutions, and we aren't running a "sandbox" for new, technology-driven companies.

What we do do, however, is support innovation with our supervisory measures. We have adjusted our administrative practices accordingly in a manner appropriate for the new target groups. "Appropriate" here means, essentially: understandable, fast and – where possible – electronic. But we must be careful not to undermine the "know your customer" principle in doing so.

Furthermore, we have worked in close cooperation with the private sector and with German federal IT specialists to introduce the possibility for video identification and have produced a circular to further define specific requirements for the financial industry. Thanks to technological advances, it is now possible – even in view of the stricter requirements brought in to prevent money laundering – to use video transmission to reliably identify natural persons who are not physically present. With appropriate training, people are able to recognise, even via video, if an identity document has been tampered with. In addition to sufficient staff training, end-to-end encryption for the transmission and comprehensive record-keeping obligations are intended to ensure that the process is secure and reliable. As a result of our positive experiences in Germany, other EU countries have now also approved video identification.

Yet no system, not even "traditional" identification methods, can guarantee the required levels of security and reliability on a permanent basis – technological advancement evolves rapidly. For that reason, we are planning to evaluate the procedure for video identification after three years, at the latest.

When doing so, we will keep in mind the interests of supervisors and of law enforcement agencies.

We want to fulfil our task of identifying and managing risks for the financial system while at the same time being open to new technologies. As regulators and supervisors, we know that modern technologies can also help to reduce the often high levels of staffing and the associated costs for institutions when implementing anti-money laundering compliance measures.¹

At the same time, we are conducting continual analysis into risks to financial stability posed by the use of new technologies. When we identify specific risks, we drive regulation forward. Six years ago, for example, we were one of the first supervisory authorities to categorise virtual currencies and cryptocurrencies as financial instruments. This was the catalyst for the creation of a legally sound basis for preventing money laundering in cyberspace as well.
Of course, we are well aware that transactions with virtual currencies are particularly susceptible to money laundering crimes because of their potentially higher level of anonymity. Taking an approach of technological neutrality and openness to innovation, we welcome the use of new technologies that counteract misuse.

The focus at the moment is on blockchain technology, which the financial sector also believes offers a great deal of potential for executing and documenting transactions quickly and securely. As yet, the possibilities that such applications offer and the possible specific structure of this new technology remain to be seen. But BaFin is arguing for supervisory considerations to be taken into account in discussions about the optimal design of the blockchain. To prevent money laundering, the most important thing would be for the blockchain to include the identity of the beneficiary of a transaction. Of course, this would need to take due consideration of relevant data protection law.

The goals that we are aiming for with fintech companies and virtual currencies also apply to regtech and suptech, of course. Here too, we need to move with the times and take advantage of any potential for efficiency. One thing that stands us in good stead for our activities is our integrated supervisory structure. Regardless of whether the subject at hand is banking or insurance supervision or questions that concern asset management supervision: BaFin is in a position to pool its knowledge across the different fields and benefit from the experience of those from other sectors. This is of particular importance for topics such as fintech or regtech, which affect most supervisory issues across the sectors.

Ladies and Gentlemen,

When we set out on the open seas of new regulatory challenges, close and frequent dialogue will make our work easier. That is exactly what seafarers have been doing for centuries; they inform each other about upcoming winds and heavy swell. Unlike in the days of the great explorers, we can draw on the latest technologies and make excellent use of these for communication, as well. In doing so, we can drive forward the objectives of the FATF – beyond the scope of this event – and ensure that more blank patches on the navigational chart of financial regulation are filled in. We would be delighted to be an active partner in future cooperation with you and, of course, with other supervisory authorities.

And now all that remains is for me to wish you an interesting forum with many inspiring debates!

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