With FinTechs eroding away traditional banks’ lead, rules governing investments in software in the European Union (EU) may loosen.
According to a news report in Reuters, as the EU banking rules stand today, money spent on software is treated as a cost instead of an investment, which forces lenders to have an equal amount of expenditures on digital apps and the same amount of capital. Due to competition from FinTechs and an increase in the threat of cyberattacks, banking regulators in the EU are mulling making some changes to that.
“The Commission services are in a dialogue with stakeholders to gain a better understanding of the interaction between accounting and prudential treatment of software,” a European Commission spokeswoman told Reuters. “We will envisage appropriate action if needed.”
Banks in the EU had been calling for changes in banking regulation since 2016, something the European Commission stayed away from last year. According to the report, money spent on software makes up about half of banks’ overall digital investments, and if it wasn’t, there would be more than $24 billion capital that is freed.
That’s in 2017 alone, reported Reuters. “It would help immensely if the Commission recognized the importance of this issue,” Wim Mijs, head of the European Banking Federation told Reuters.
FinTech companies in Europe caught the banks off guard, resulting in them being slow to invest in the changes happening in the financial sectors. With FinTechs stealing their customers, European banks have been waking up to the competitive threat. The banks have been eyeing acquisitions of startups to get their hands on new technology. At the same time, they are investing in upgrading their digital backbones to support all the technology advancements and fight off cybercrime. Reuters pointed to Celent, the financial services consulting company, which forecasts that banks in Europe will spend more than $71 billion in 2017 on software and information technology.