On the 5th Annual Conference on FinTech and Regulation, the European Commissioner for Financial Stability, Financial Services and the Capital Markets Union, Mairead McGuinness, gave a keynote speech on the new challenges facing the FinTech environment and the proposed new solutions, as well as her vision of future innovations which she believes will contribute to FinTech becoming more available and user friendly for the customer. However, although these new technologies should result in greater opportunities, the Commissioner is of the view, that this will not be without challenges and risks. For new innovations in the digital finance environment to flourish in the EU, these risks need to be mitigated and balanced with the opportunities they create.
In her speech, the Commissioner outlines three elements: building a regulatory framework to make rules digital-friendly and safe for consumers (policy), a common EU financial data space empowering citizens in a new digital economy (data) and nurturing the talent pool in Europe and empowering consumers to reap the benefits of a digital economy (people).
The Commissioner briefly discussed the Digital Finance Package, and recent legislative initiatives of the EU Commission such as the proposal for a digital operational resilience act (DORA), the proposal for a Regulation on Markets in Crypto Assets (MiCA), and the proposal for a pilot regime for testing the use of distributed ledger technology by market infrastructures for financial instruments.
With respect to the Retail Payments Strategy, the Commissioner outlined two main objectives:
- To deepen the Single Euro Payments Area and reduce fragmentation, in particular, with regards to instant payments.
- To assess during the review of the PSD2 if the regulatory perimeter for payment activities remains fit for purpose both in terms of safeguarding consumer protection and enabling competition and innovation.
Furthermore, the Commissioner reflected on the recent European Central Bank’s initiative to explore the possibility of issuing a retail central bank digital currency – a digital euro and their report on its viability which included a public consultation. She stated that there are a number of key challenges and risks that need to be thoroughly assessed before making any decisions, for instance, would a digital euro complement or substitute cash and is there a risk of crowding out private payments solutions.
With respect to big tech, the Commissioner explained that the EU Commission services have issued a call for advice to the European Supervisory Authorities to assess (i) how are new players and businesses that come into the digital transformation changing risks in the financial system, (ii) if the existing rules cover those risks, and (iii) whether supervisors have the necessary tools to monitor the risks that arise.
On the Commissioner’s agenda is also a new data framework across economic sectors, which consists of the Digital Services Act, Digital Governance Act and Data Act, and the proposed legislation on the Open Finance Framework.
Those who felt the burden of the AML compliance in terms of KYC identification requirements will be pleased to know that the EU Commission is planning to create a single digital identification framework which would enable the use of interoperable digital identity solutions by 2024, as discussed by the Commissioner in her speech. This means that the customers would only need to identify themselves once, reducing barriers to switching between service or finance providers. We hope that the UK, though no longer part of the EU, will find a way to be part of this helpful EU initiative.
Finally, for those who are still not convinced of the importance of FinTech, the Commissioner reminded in her speech of the economic opportunity which FinTech represents, and the social empowerment which it entails by (i) advancing financial inclusion, (ii) increasing digital literacy, and (iii) giving consumers more choice.
If you need advice on certain legal and regulatory points raised in this speech, or an early assessment on how these developments are likely to impact your company, please contact us.
