De Nederlandsche Bank

As an independent central bank, supervisor and resolution authority, De Nederlandsche Bank (DNB) works alongside national and international partners to contribute to sustainable prosperity in the Netherlands based on stable prices, smooth and safe payments, and robust and reliable financial institutions. Here, Patrick de Neef (Chief Innovation Officer) and Coen ter Wal (Strategy Advisor Tech) provide their perspectives on digital sustainability and the importance of data-mobility policies for the financial sector.

“PSD2 and Open Finance are two pieces of the puzzle, but data mobility must be set up across sectors based on meaningful data sovereignty for consumers”

 

What does ‘digital sustainability’ mean to you, and how does this fit in with DNB’s mandate?

Patrick de Neef (PdN): “The digital transformation is a fundamental change for everyone – for industry, for us as a supervisory body, for society and perhaps ultimately for the human race – but it is not a process that can happen overnight. Fully integrating data into our lives requires lots of decisions to be made and the journey is lined with countless pitfalls such as privacy problems, data leaks and the risk of computers with artificial intelligence (AI) making undesired decisions for us… or, to put it in Hollywood terms, taking over the world. ‘Digital sustainability’ is about ensuring that each step in this transition takes us closer to creating a world in which we can benefit from the positive outcomes – such as innovation and greater efficiency – while avoiding the negatives. Unlike environmental sustainability, which is a race to preserve planet Earth for future generations against the backdrop of a finite supply of natural resources and raw materials, there is no limit to the required digital resource: data. In fact, its volume is growing all the time. That’s why it’s so important to manage this process to ensure the proper use of these ‘data resources’ based on a long-term horizon and a holistic vision. So digital sustainability relates to issues such as security, privacy and fairness as well as ethical considerations about the role of humans versus computers within tomorrow’s digital society.”

Coen ter Wal (CtW): “DNB’s mandate is specifically focused on the sustainable development and stability of the financial system, and data is a very important part of that. After all, as we see BigTechs and non-financial entities enter the market, the structure of the financial sector is changing and the lines are blurring. On top of this, consumers have ever-higher expectations in terms of speed, convenience and personalisation. In order to continue to meet those needs in the long term, access to different types of data will become increasingly key to the financial sector. That’s why the ability to share and access data, or ‘data mobility’ as we call it within DNB, will become increasingly essential. But it is important that this is done in a digitally sustainable way, based on the interests of consumers.”

How can companies and organisations in the financial industry become more digitally sustainable? What are the biggest challenges facing them?

PdN: “As supervisors, we always say that success is about managing the risks. So in the context of digital sustainability, companies need to start by looking at their business models in light of their own environment. The speed at which the digital transformation is accelerating adds an extra dimension, because new risks are emerging all the time. Organisations can’t afford to wait and see what happens; they need to not only understand and properly manage the existing risks, but also be agile enough to adapt rapidly to changes. Scenario-based thinking is key to staying responsive. Besides this, it is important to think about what kind of people and skillsets you will need in the future. As the financial sector becomes increasingly dependent on the use of data, advanced algorithms and AI applications, more programmers, risk managers, auditors, managers and supervisors possessing such digital skills will be needed. The future availability of this kind of talent is often overlooked but it will be essential for a sustainable digital transformation. Lastly, privacy and security will further grow in importance because more data is combined from a growing number of increasingly interconnected data sources. This added complexity makes it even more difficult to ensure that data is only used for the intended goal. It’s important that the financial ecosystem – the financial supervisors, regulators, businesses and consumers – finds a way of managing that complexity effectively, and legislation can certainly help in this respect.”

How is digital sustainability linked to Open Finance?

CtW: “For Open Finance – i.e. the sharing of financial data – to be possible, financial services organisations need consumers to be willing to share their data with them. This forms the very foundation for meeting rising consumer expectations, fair competition and innovation in the financial sector. However, despite legislation such as PSD2 dictating that personal data many only be shared with the owner’s permission and consent, many consumers have trust issues. Moreover, consumers are not always aware of the potential impact of their data being used. For example, besides the risk of privacy losses, consumers may also face price differentiation based on the data they provide, or they may suffer exclusion if they are unwilling to share data. Therefore, for Open Finance and data mobility to realise its full potential – and for it to develop in line with AFM’s and DNB’s mandates of keeping the financial system stable and protecting consumers – the data-receiving parties must also take some responsibility for using the consumer’s data in a digitally sustainable manner. They should recognise their duty of care and develop formal policies outlining how they will or won’t use a consumer’s data. Only then can we start building ‘meaningful data sovereignty’ in which consumers are in the driving seat, have control over their own data and have confidence in sharing their data.”

In collaboration with the Autoriteit Financiële Markten (AFM), DNB has published a discussion paper on ‘Data Mobility and the Financial Sector’. What is the aim and key message of this paper?

PdN: “As DNB, we are keen to engage in dialogue with all stakeholders in the financial services ecosystem in order to pool our knowledge and expertise so that we can shape and manage the digital transformation and develop an effective data-sharing framework together. In that context, our main aim with this discussion paper is to trigger constructive debate, both among policymakers and also within the broader industry.”

CtW: “As the starting point for the discussion paper, we set out to explore how data-sharing regulation can support a financial services sector that is sustainable, competitive, innovative and fair. We took a step back to consider what the various EU legislative developments such as the Data Sharing Initiative, the Digital Markets Act and the Data Act all mean in this context. This led to us to form a preliminary vision for data mobility in which policy enables trusted, innovation-enhancing and equitable data mobility. We then identified three core policy priorities to achieve this vision: 1) Safeguarding data holders’ interests, 2) Enabling data-related innovation, which means ensuring access to sufficient volumes and varieties of data, and 3) Creating a level data playing field for competition. Because data can be used to enhance so many different processes and areas of the economy, we believe it is important that the sharing of data is not limited too strictly to particular use cases, because that prevents the data from reaching its full potential for adding value. For example, non-financial data – such as BigTech data, IoT data, infrastructure data and energy data – is becoming increasingly relevant in financial products and services. Therefore, for a level playing field, we need to ensure that different types of financial services companies can have equitable access to non-financial data in addition to financial data. Otherwise, data incumbents will continue to have better access to data than new entrants, which potentially stands in the way of competition and the development of innovative, beneficial and value-adding products. We concluded that the regulatory framework for data sharing can certainly help to broaden access to data and support the sustainability of the financial services sector, but only if it takes a cross-sectoral approach to enable the sharing of all kinds of data between different industries. PSD2 and Open Finance are two pieces of the puzzle, but the key is to take a holistic approach to data-sharing regulation rather than thinking in silos.”

How is digital sustainability already being put into practice?

PdN: “Supervision itself is going through a digital transformation. We’re currently mainly working on getting all manual steps into a digital workflow with modern tools. Innovative techniques such as AI can be very useful to better assess risks and reduce time for certain supervisory processes, but these advanced techniques require a robust digital basis. Importantly, when we use things like AI at DNB, we subject ourselves to the same rules and expectations as we set for the sector. One of the things we struggle with is the connection between our long-term digital strategy and the end uses as the supervisor. In this respect, we are no different from many other organisations and therefore we spend time on both the technology and the human side of our digital journey. After all, in IT it’s not about the product itself, but about its impact. Unless the product has the desired effect, you won’t achieve a sustainable improvement. The question of data sharing is also relevant for DNB, as one of our core tasks – to provide national statistics – is all about data sharing. Besides that, we also consider other possibilities for sharing data, such as in benchmarks.”

CtW: “In the broader industry, I am pleased to see that some financial entities are already becoming less ‘possessive’ of data. There are signs of a mindset shift towards ‘ecosystem thinking’ as organisations realise that enabling consumers to share their data with other parties can create more value for those consumers, which increases the value of the whole ecosystem and ultimately benefits the organisation itself too. It’s an interesting journey and regulation can definitely play a part in accelerating this shift towards a digitally sustainable future, as long as it is approached holistically.”

 

The AFM-DNB Discussion Paper on Data Mobility can be found here. The deadline for responding to consultation questions is 11 November 2022.

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