On September 14, 2016, the European Commission issued its Communication, titled “Capital Markets Union – Accelerating Reform”, setting out the next steps to accelerate the completion of the Capital Markets Union (CMU) Action Plan of 2015, which is a key building block of the Commission’s Investment Plan for Europe. The CMU will complement Europe’s strong tradition of bank financing, and will help to unlock more investment from the EU and the rest of the world; connect financing more effectively to investment projects across the EU; and make the financial system more stable and deepen financial integration and increase competition.

For the EC, it is essential to step up implementation and accelerate CMU reform, taking also into account that economic and technological developments, such as the rapid growth of Financial Tecnology (FinTech) or the need to build more sustainable finance, have the power to transform EU capital markets .

In the recent years, FinTech firms have entered successfully the financial sector driving rapid change in this area due to the power to increase the role of capital markets, and bringing them closer to companies and investors. A recent study by McKinsey pointed out that USD 23 billion of venture capital and growth equity has been deployed to FinTechs in the five years to 2014, with around one-half of this total invested in 2014 (See: McKinsey, “Cutting Through the FinTech Noise: Markers of Success, Imperatives for Banks”, December 2015; Challenges for the European banking industry, Lecture by Vítor Constâncio, Vice-President of the ECB, at the Conference on “European Banking Industry: what’s next?”, organised by the University of Navarra, Madrid, 7 July 2016). According to Forbes, instead, “venture investment in global FinTech tripled between 2008 and 2013 to $2.97 billion and is expected to reach $8 billion by 2018”.

Taking into account this results, on July 20, 2016, the European Commission launched a call for tenders for a service contract to conduct a study on the FinTech sector. The objective of the contract is to better understand the FinTech sector and its players and to evaluate its impact on the banking sector and financial services industry and its incumbent players.

According to European Central Bank, FinTech presents an opportunity for new start-ups to compete with established financial institutions in specific financial services, but without the costs of legacy IT systems and a compliance-oriented business culture. FinTech also opens the market for “BigTech” firms such as Apple, Google and Amazon, which have an in-built advantage in digital technology (See: “From challenges to opportunities: rebooting the European financial sector”, Keynote speech by Benoît Cœuré, Member of the Executive Board of the ECB, at SZ (Süddeutsche Zeitung) Finance Day 2016, Frankfurt am Main, 2 March 2016).

However, the European Central Bank (EBC) is aware that Financial Technology (FinTech) firms may represent a potential threat for banks, because if they do not respond effectively to this challenge, this could lead to a loss of market share and significant reduction in bank revenue. Though, the EBC pointed out that the new technology of the distributed ledger or blockchain may be considered an opportunity, mostly for banks that have financial capacity to invest in it, to establish a wide network of secure, less expensive account transactions and settlements. (See: Challenges for the European banking industry, Lecture by Vítor Constâncio, Vice-President of the ECB, at the Conference on “European Banking Industry: what’s next?”, organised by the University of Navarra, Madrid, 7 July 2016).

The key of the success of the FinTech firms can be found in the manner they provide new services that meet consumers’ needs better in many financial fields including payments and lending. However, they have the ability to take also advantages of the development in ICT sector, exploiting big data and Icloud technologies (See: The troubled life of the banking industry, Giorgio Gobbi, Head of Financial Stability Banca d’Italia, University of Verona 2 September 2016). In the next future, hence, Fintech Firms may face new challenges, due to the New EU data protection regulation, which aims at giving citizens back control of their personal data and create a high, uniform level of data protection across the EU. In particular, in accordance with the new privacy rules, Non-European companies will have to respect European data protection law if they operate on the European market.

Under those consideration, the EC Communication of September 14, 2016 highlighted the importance to manage the new challenges that the rapid development of FinTech market poses, ensuring the regulatory environment strikes an appropriate balance between building confidence in companies and investors, protecting consumers and providing the FinTech industry the space to develop, enacting its collaboration with the with the European Supervisory Authorities (ESAs), the European Central Bank, other standard setting bodies, and the Member States to develop a coordinated policy approach that supports the development of FinTech in an appropriate regulatory environment.