Jointly, the Governor of the Central Bank of Cyprus, Constantinos Herodotou, and the President of the European Banking Authority, José Manuel Campa, conveyed a common message that financial technology companies can create positive synergies with traditional institutions. They emphasized the need for supervisors and regulatory frameworks to remain vigilant as new technologies bring both opportunities and risks.

Speaking at an event titled "Can Banks and Financial Technology Companies Coexist?", Mr. Campa praised the significant transformation achieved by Cypriot banks. These banks successfully reduced their non-performing loan ratio to 3% of total loans, and he encouraged them to continue their good work, considering that their NPL ratio remains slightly above the European average.

Preliminary results for the first quarter of the year indicate that the Cypriot banking sector outperforms other banking systems with the highest return on equity. Increased interest rates and expanding interest margins have favored their profitability, while they have managed to control their funding costs.

The higher profitability has also helped Cypriot banks improve their solvency indicators while maintaining high liquidity levels.

In addition, President Campa mentioned the results of the upcoming Risk Assessment Questionnaire (RAQ) which have not yet been published. He stated that 85% of Cypriot banks participating in the survey expressed their embrace of financial technology.

He further revealed that a percentage ranging from 50% to 100% of the banks' customers have access to either retail or corporate banking services through digital channels. Moreover, 82% of the banks are expected to leverage artificial intelligence applications for regulatory and supervisory reporting, risk monitoring, fraud detection, and credit assessment.

"82% of the responding banks have reported plans for collaborations with major technology companies to provide financial services," he said.

Mr. Campa highlighted the strong demand for financial technology solutions, which reflects the positive role technology can play in shaping financial intermediation. He emphasized that for financial institutions, financial technology can enhance efficiency in internal processes, including regulatory compliance and supervisory reporting. Delegating tasks to specialized technology units can enhance the banks' focus on core activities. He also stressed that leveraging digital platforms or collaborating with technology companies will help banks penetrate broader customer bases, including cross-border markets, by benefiting from economies of scale.

"To responsibly capitalize on these opportunities, the industry and supervisors must actively identify, monitor, and mitigate the multifaceted and interconnected risks involved," emphasized Mr. Campa.

In his address, Mr. Herodotou underscored the potential for collaboration between banks and fintechs to capitalize on their respective strengths and deliver superior services to clients. By combining the broad network reach and supervisory expertise of banks with the agility and innovative operational models of fintech companies, they can unlock mutual benefits.

Among other key points, he emphasized the importance of funding these companies to expand their business operations. Simultaneously, banks stand to gain valuable experience in new technologies and business models through partnerships with these firms.

Mr. Herodotou stressed that while new opportunities bring both challenges and risks, the supervisory and regulatory community must remain vigilant to ensure compliance with laws and regulations. This vigilance applies across various business models and levels of technological advancement.

The discussion also touched upon risks related to cybersecurity, governance, data protection, and operational resilience.

Considering the topic of excessive supervisory burden on banks compared to fintechs and its potential impact on banks' innovation investments, Mr. Campa noted the importance of applying uniform rules to similar activities and risks for both credit institutions and fintech companies. He acknowledged specific problems in cryptocurrency companies related to governance issues and commingling of funds, emphasizing that effective management is essential, and rules should be consistent for companies facing the same risks.

Mr. Herodotou further emphasized that the licensing process and regulatory compliance differ for banks due to their acceptance of deposits. Thus, it becomes imperative to ensure that banks are well-capitalized, resilient, and proficient in risk management.

He clarified that the goal of supervision is not to impede innovation, but rather to support it. As both a national supervisor and representative of the ECB, he expressed a favorable stance toward innovation and technology. There are no prohibitions in place, and banks are encouraged to embrace innovation responsibly, without exacerbating risks.

While acknowledging the risks associated with innovative endeavors, Mr. Campa highlighted the need for a balanced perspective, considering both risks and opportunities. The intention is to underscore the risks while not discouraging innovation, as emphasized by the Governor.

Overall, the discussion emphasized the potential benefits of collaboration between banks and fintechs, the importance of compliance with regulations, and the need for effective risk management and supervision across the financial industry.