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University of Pavia

Question 1: Are the issues identified by the EBA and the way forward proposed in section 4.1 relevant and complete? If not, please explain why.
yes
Question 2: Are the issues identified by the EBA and the way forward proposed in subsection 4.2.1 relevant and complete? If not, please explain why.
yes, however a further risk/opportunity should be included.
There is need to address the "informational" risks posed by Fintech activities to their customers, which are amplified by the great interconnectdness of the Fintech ecosystem. Due to their "disintermediated" nature, and in the light of a possibly aggressive marketing activity, Fintechs may assess credit scoring and/or credit risk of a counterparty in a way that does not accurately estimate the underlying probability of default. This bias may be amplified by the systemic risk that arise among Fintech borrowers, highly intereconnected with each other so that, when a counterparty fails, there may be a strong contagion effect on other, neighbouring, counterparties, that may further bias the estimate of the probability of default. To tackle this issue, and allow the devlopment of the innovative services provided by fintechs, we suggest to use "network" based models to estimate default which, using transactional/networked data naturally available for fintechs, improve the estimation of credit risk, both at the idiiosyncretic and at the systemic level. These models belong to the so-called financial network models, employed so far to measure systemic risks and contagion. Our R&D work, documented by research published in relevant finance scientific journal,s shows how it can effectively improve predictive perfomance, on real case studies that concern European Fintechs.
Question 3: What opportunities and threats arising from FinTech do you foresee for credit institutions?
Credit institutions will likely evolve, to a "fintech" style model, either directly or through partnerships. This means that informational risks, as described in the previous comment, amplify and become more systematically important. The same for cyber operational risks.
Question 4: Are the issues identified by the EBA and the way forward proposed in subsection 4.2.2 relevant and complete? If not, please explain why.
yes, I would suggest that the suggested training and workshop activity for supervisors indicated could be extended to include fintech researchers from the academia
Question 5: What opportunities and threats arising from FinTech do you foresee for payment institutions and electronic money institutions?
yes
Question 6: Are the issues identified by the EBA and the way forward proposed in subsection 4.3.1 relevant and complete? If not, please explain why.
yes
Question 7: What are your views on the impact that the use of technology-enabled financial innovation and/or the growth in the number of FinTech providers and the volume of their business may have on the business model of incumbent credit institutions?
yeses
Question 8: Are the issues identified by the EBA and the way forward proposed in subsection 4.3.2 relevant and complete? If not, please explain why.
yes
Question 9: What are your views on the impact that the use of technology-enabled financial innovation and/or the growth in the number of FinTech providers and the volume of their business may have on the business models of incumbent payment or electronic money institutions?
yes
Question 10: Are the issues identified by the EBA and the way forward proposed in subsection 4.4.1 relevant and complete? If not, please explain why.
yes
Question 11: Are the issues identified by the EBA and the way forward proposed in subsection 4.4.2 relevant and complete? If not, please explain why.
yes
Question 19: Are the issues identified by the EBA and the way forward proposed in subsection 4.4.6 relevant and complete? If not, please explain why.
Yes, although I would add that machine learning and AI algorithms should be explicitly evaluated, looking at what actual statistical advantage they bring, for example in terms of improved predictive accuracy. Supervisors cannot establish the "coding" correctness of an algorithm, however, they can establish its "statistical" ("learning") performance
Question 20: Are the issues identified by the EBA and the way forward proposed in section 4.5 relevant and complete? If not, please explain why.
yes
Question 21: Do you agree with the issues identified by the EBA and the way forward proposed in section 4.6? Are there any other issues you think the EBA should consider?
yes
Contact name
Paolo Giudici