We spoke to Sabine Lautenschläger, a senior adviser in Covington’s Frankfurt office and a member of the Global Public Policy Practice. Sabine has had an extensive career in public service as a banking regulator at EU level and in Germany. Most recently, she served as Vice-Chair of the Single Supervisory Mechanism at the European Central Bank (ECB), and was a Member of the Executive Board of the ECB from 2014 to 2019.
Tell us about yourself
I am a German lawyer with almost 30 years’ experience in the public sector, including senior roles at BaFin, the German financial services regulator, Deutsche Bundesbank, and the European Central Bank. After leaving the public sector I joined Covington as a senior adviser and I also serve inter alia as a non-executive Board member at the Dubai Financial Services Authority, UAE, and at the Financial Services Volunteer Corps, New York, USA.
What are your areas of expertise?
I was a banking supervisor for decades, starting as an analyst and finishing as Vice Chair of the Single Supervisory Mechanism – in effect everything around European and international banking regulation and supervisory practices are my areas of expertise. I also served as Deputy Governor at Deutsche Bundesbank and Executive Director at the ECB. Over the course of my career I obtained some detailed insights into monetary policy.
What has been the proudest moment of your career?
On November 4, 2014, the Single Supervisory Mechanism (SSM) took over officially the responsibility for supervising 124 systemically relevant banks in the Euro area. It was a historic moment, and I am still proud to have been part of it. Within two years of starting the preparations, we established a new European institution, did a comprehensive assessment of the respective banks, recruited more than 1,000 banking supervisors from 28 different countries, and agreed with 19 national supervisors on the major supervisory policies to be applied. On top of this, we managed to significantly improve banking supervision in the Euro area!
What are the biggest challenges in regulating financial institutions today?
It is clear that there are new challenges such as digitization of financial services, cyber security risks and new competitors for banks. As a result, supervisors need to be concerned about the viability of business models, operational risks and sufficient skilled staff resources in banking supervision.
In addition, regulators need to ask themselves whether the old principle of same business, same risks, same rules should not be applied to fintech companies, meaning that fintechs which engage in offering financial services should be subject to the same rules as their licensed competitors.
In parallel, the risk of forgetting the consequences of the last big crisis more than 15 years ago is getting bigger. Unfortunately, harmonizing financial regulation and intrusive supervision are not seen as positively as they were shortly after the great financial crisis of 2008. Supervisors need the backing of lawmakers to react effectively and quickly to rising risks, so that is a concern.
What opportunities are there to improve the regulatory landscape?
There are not only challenges related to the digitisation of financial services but opportunities, too. And here I am not only talking about improving payments services. Looking at DORA – the new EU regulation coming into force in January 2025 – this will be a major opportunity to combine national and European skills to get a grip on critical third-party services providers to financial services. If it is done correctly, it will be a major step forward for the cooperation of national and European overseers and for pooling scarce IT resources.
How do you see the future for payments?
I hope that digitization will bring significant improvements to the payment infrastructures. There is a huge chance for Europe to get less dependent on systems domiciled outside of Europe with regard to cross-border payments. We need quick cross-border payments for a more favorable pricing regime, and digitization can help with this. But for this to happen we also need a joint understanding in the industry, too, about the long-term advantages of being independent from non-European payment systems.
With regards to digital currency, I would first have to ask you how you define digital currency. If we are talking about the Central Bank digital currency, I am not sure whether this will change the market permanently and significantly or whether it is a temporary trend which will exist with no great impact as a parallel type of currency next to the types already in existence. To my mind, it all depends on how the major Central Banks will design their digital currencies and which services banks will bring to the table.
What’s your perspective on the challenges and opportunities for women in financial services?
I am convinced that the next 20 years will be the time of women in financial services. This is partly due to demographics, but it is also a consequence of raising awareness and setting new rules and fighting for equal treatment, too. And I think that young women today simply expect to be treated equally; for them it is natural, unlike for women in my generation.
What advice would you give to your younger self?
Well, which of the many pieces of advice to choose? I would tell my younger self to listen to my gut feeling – if it feels weird, to probe until one gets satisfying answers. I would also advise people to invest more time in communicating with all stakeholders in good times to save time in bad times.
Tell us an amusing anecdote about your work.
Banking supervision does not lend itself easily to anecdotes. But working with colleagues from many different countries can lead to many language misunderstandings, and I recall some amusing word-to-word translations of old German sayings which led to loud laughter with my colleagues. I seem to remember that my translations of the German idiom “we do not want to jump as a tiger and land as a bedside rug” or, when talking about bank mergers, “two ugly ducks do not make a pretty swan” always lightened the mood!
