2020: Towards a European digital finance strategy
As fintech comes of age, the surrounding regulatory framework will see a much-anticipated reassessment from 2020 and onwards. Under the new mandate of the Von der Leyen Commission, the European Commission has initiated a work program that will propose a new digital finance strategy (DFS)1. This new FinTech action plan sets out a number of areas that public policy should focus on in the coming five years.and will build on the work carried out during the previous mandate.
The EU digital finance strategy is part of a larger digital ambition to transform Europe into a global digital leader and a role model for the digital economy2. Trailing behind the US and China in digital leadership and innovation, the EU aims to catch-up but is set to do so on its own terms and conditions for the digital age. The Commission wants a European society powered by digital solutions that are strongly rooted in common European values, which strongly emphasizes the benefits of technology for its citizens.
The need for a digital finance strategy
Although the ambition of the Commission predates the COVID-19 pandemic, the crisis has put a spotlight on the role and importance of digital finance, as well as demonstrating its immediate benefits. In leading digital EU economies3 – like the Nordics and The Netherlands – financial services have been largely uninterrupted during the lock-down period. It also made clear where improvements need to be made as well, e.g. in a well-functioning digital identity and removing unnecessary impediments due to outdated legal requirements.
Economic recovery from the current crisis will also require the European economy to reinvent itself. Therefore it is crucial to grasp all the potential of the digital age across the economy, including in the financial sector.
The scope of DFS
The DFS covers a wide range of themes, which were also identified by the expert group on Regulatory Obstacles to Financial Innovation. The ROFIEG group was established under the 2018 FinTech Action Plan and has presented 30 recommendations in their report published in December 20194.
In its DFS the European Commission addresses four key themes as part of this strategy, which is strongly interlinked with horizontal priorities such as the EC Data Strategy and AI Strategy.
It aims to ensure that the EU financial services regulatory framework is fit for the digital age, balancing the emergence and scaling up of new technologies and innovative business models with sufficient consumer protection.
Secondly, it should enable consumers and firms to reap the opportunities offered by the EU-wide Single Market for digital financial services by removing existing fragmentation.
As a third priority, the Commission aims to promote a data-driven financial sector for the benefit of EU consumers and firms, including the further development of Open Finance and the use of AI in the financial sector.
Its fourth policy pillar should enhance the digital operational resilience of the EU financial system, reinforcing the ability of financial entities to build and maintain its operational integrity and the full range of operational capabilities, related to any digital and data technology-dependent component.
Not covered as part of the DFS consultation earlier this year, but relevant for fintech developments are a new approach to fighting money laundering and the green financing strategy, which are also part of the new work program. Also, a specific consultation on a new Retail Payments Strategy has been launched specifically aimed at both strengthening Europe’s influence and consolidating its economic autonomy.
Concrete regulatory and non-regulatory initiatives are to be expected in the coming months, even as early as September. One of the first initiatives to be launched will be a regulatory proposal on Markets in crypto-assets (MiCA), which will cover both crypto-assets already in the scope of MiFID II and a framework for global stable coins. An EU framework for crypto-assets. This will bring much needed legal and regulatory clarity for this innovative market to develop further.
Setting the right preconditions for digital finance policy
As Dutch Banking Association we believe that these new initiatives will create the foundation for further fintech developments. New market entrants play a crucial role in building a more innovative financial sector alongside and together with incumbent players. However, as digital transformation is also blurring the boundaries between sectors and within financial service,s there is a need to reassess the current regulatory framework. Therefore the Commission should create a European level playing field for all actors in financial services. Both for new entrants, incumbents as well as BigTech.
To stimulate innovation and facilitate technology uptake in the financial sector new initiatives by the Commission should also be technology-neutral in its approach, thus creating the right preconditions for innovation in a strongly regulated industry.
To fully reap the benefits of innovation regulatory and supervisory requirements should apply evenly and consistently across financial services: same services, same risk, same rules, same supervision. Not only should all competitors be able to compete on equal footing. In the end, it is the consumers who should always benefit from the same standard of protection when accessing the same products and services, regardless of who is providing the service and from where it is offered.
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