What is the resolution’s objective?
The explanatory statement accompanying the motion acknowledges that Fintech can lead to significant benefits in terms of cost reductions, efficiency gains, transparency and financial inclusion. However, it also points out that most Fintech investments have so far been made outside the EU, and that new opportunities are accompanied by both regulatory and social challenges. The proposed resolution calls for a joint and structured approach to these Fintech-related challenges on a European level.
Fintech in a broad sense
The proposed resolution sees Fintech as “finance enabled by or provided via new technologies” covering the whole range of financial services, products and infrastructure including Regtech and Insurtech but also cybersecurity, Big Data and APIs.
The explanatory statement explicitly mentions that the resolution does not intend to propose that the Commission take specific legislative actions, but to set out an approach on how to take technological developments into account when reviewing existing legislation and formulating future legislation.
New technological developments do not stop at borders and often function simultaneously in multiple sectors. If Europe wants to remain competitive, rapid innovation should be the norm. The proposed resolution therefore calls for a holistic approach by the Commission and “breaking silos” by working across several directorates-general and policy areas during the development of a Fintech strategy.
EU Fintech framework
The proposed resolution calls on the Commission to draw up a Fintech Action Plan to boost its Capital Markets Union and Digital Single Market strategies and aim for a competitive financial system, financial stability and consumer and investor protection.
This Fintech Action Plan should:
- safeguard a level playing field for traditional financial institutions, start-ups and tech giants based on the principle of “same services, same rules” and taking into account the amount of risk posed by Fintech providers to the financial system;
- reduce the administrative burden, in line with the Commission’s better regulation agenda;
- ensure that all new EU legislation is guided by the “innovation principle”, which means that the potential effect of legislation on innovation should be investigated during the impact assessment phase of the legislative process; and
- ensure technology neutrality at every level of legislation.
A different supervisory methodology: call for experimentation
According to the explanatory statement, the European supervisory framework should enhance innovation. Supervisors, market participants, the Commission and member states should all work together by exchanging information, developing standards and exploring potential benefits.
“A fundamentally changing financial infrastructure implies the need for a changed supervisory methodology, which does not prevent disruption from creating new market opportunities for Europe.”
The proposed resolution emphasises the importance of experimenting with financial innovations before taking them to the market. Special experimentation regimes already deployed in some countries worldwide – in the Netherlands, for example, via the Regulatory Sandbox and the Innovation Hub, a combined effort of the Dutch Central Bank and the Netherlands Authority for the Financial Markets – could serve as an example for the European Fintech framework.
The proposed resolution recommends starting experimentation where there is not yet a legacy of compliance– for example, with the Central Securities Depositary Regulation – and calls on the Commission and member states to apply passporting regimes new financial services offered across the EU.
Additionally, the proposed resolution recommends that the ECB launch experiments with a “virtual Euro.”
Data and interoperability
With regard to data and interoperability, the proposed resolution stresses the importance of the free flow of data within the EU and the interoperability of national e-Identification schemes. It highlights the need for technology-neutral legislation, standards and licences and calls for clear guidelines for a range of specific topics such as outsourcing data to the cloud.
Fintech provides for unprecedented new opportunities, but those opportunities are matched by new cybersecurity threats. The number of cyberattacks on large organisations and households alike is growing while member state practices relating to ICT risk vary significantly.
The proposed resolution calls on the Commission to make cybersecurity the number one priority in the Fintech Action Plan and calls on the European supervisory authorities to regularly review operational standards covering ICT risks of financial institutions and ESA to draw up guidelines on the supervision of these risks.
The proposed resolution explicitly mentions the concern for the increased use of ”unpermissioned” blockchain applications, in particular Bitcoin, for criminal activities, tax evasion, tax avoidance and money laundering. The resolution invites the Commission to organise an annual multi-stakeholder conference on the subject.
After the motion’s publication on 27 January 2017, negotiations started between political parties in the European Parliament. The European Parliament is expected to vote on the motion in May 2017. If the resolution is adopted, the Commission must take it into account when formulating future legislation. A Fintech taskforce, consisting of people from several directorates, is currently working on this.
We will be monitoring Fintech developments and provide updates when relevant. In the meantime, please contact us if you have any queries on the matter, including questions on possibilities that may already be available for your organisation to minimize unnecessary constraints or delays by unfit legislation when developing new products, services or processes innovating the financial industry.