On 29 May 2019, the European Banking Authority (EBA) published its Annual Report 2018 illustrating the actions taken during the last year and setting out the forthcoming actions and next steps for 2019.
The report covers a number of matters related to the banking and financial market.
Below is an overview on the main FinTech and cryptoassets related topics.
In line with the EBA Fintech roadmap published in March 2018 following the EU Commission FinTech action plan, the EBA has focused on a number of topics related to opportunities and risks arising from the latest developments in the FinTech area.
Financial innovation was also one of the main points on the European Supervisory Authorities (ESAs) Joint Committee agenda in 2018.
In this regard, the ESAs published a report on the use of big data for the development of products tailored to customer needs and carried out a monitoring exercise on automation in financial advice which showed that the phenomenon is growing slowly even if the number of firms involved is still quite limited.
In 2019, the EBA aims to establish a new 'innovation radar' for a regular monitoring of financial innovations (including new products and innovative uses of existing products and services) on the basis of feedback from financial institutions, technology providers, academics, national competent authorities and internal experts.
At the end of 2018, the EBA concluded its work on a report analysing the applicability and suitability of current EU law with regard to cryptoassets and published the results of the analysis on 9 January 2019.
In its view, cryptoasset activities in the EU are relatively limited at this stage and do not appear to give rise to significant implications for financial stability. However, the related risks are not treated in a common way across the EU and this may jeopardise the level playing field principle.
The EBA also pointed out specific risks related to custodian wallets, cryptoasset trading platforms and gaps in relation to anti-money laundering/combating terrorism financing (AML/CTF).
The report identified some actions to be taken in 2019 in order to strengthen monitoring practices of banks, investment firms, payment institutions and e-money institutions as well as to assess consumer-facing disclosure practices regarding cryptoassets.
Changes in credit institutions' business models, prudential risks and opportunities
In 2018, the EBA published two thematic reports on: (i) the impact of FinTech on incumbent credit institutions’ business models; and (ii) the prudential risks and opportunities arising for institutions from FinTech. The first report identified customer expectations and behaviour, profitability concerns, increased competition and the regulatory framework as the main drivers behind changes in business models of incumbents while the second report assessed seven possible use cases where new technologies (including distributed ledger technology) are applied or to be applied to financial processes and services.
In a nutshell, both reports aim to raise awareness of prudential risks and opportunities stemming from current and potential FinTech applications as well as to offer insights on the main trends and potential challenges.
In 2019, the EBA will continue monitoring the relevant developments as well as access to the market of FinTech firms with innovative business models and activities.
During 2018, the EBA worked with the European Securities and Markets Authority (ESMA) and the European Insurance and Occupational Pensions Authority (EIOPA) on a joint report, published in January 2019, setting out a comparative analysis on innovation facilitators established by the national competent authorities (i.e. innovation hubs and regulatory sandboxes). The aim was to identify common best practices and options to enhance co-ordination and cooperation at EU level.
A first step in this direction was taken with the launch of the European Forum for Innovation Facilitators (EFIF) aimed at, among other things, helping foster a common supervisory and regulatory response to FinTech challenges.
The ESAs will continue their joint work in 2019 in order to identify and analyse options for strengthening co-operation between national innovation facilitators and will define the appropriate next steps.
During 2018, the EBA continued to deliver the technical standards and guidelines mandated by PSD2 and worked on supervisory convergence to ensure that the PSD2 provisions are applied in a sound, consistent and efficient manner across the EU.
More specifically, the EBA has published:
- Guidelines on fraud reporting, aimed at ensuring the availability of consistent statistical data on payment fraud across the EU in order to ensure greater security of retail payments.
- Draft RTS on home-host co-operation, which specify the procedure for cooperation and exchange of information between home and host competent authorities.
- Opinion on the implementation of the RTS on strong customer authentication (SCA) and common and secure communication (CSC).
- Guidelines on the conditions that account-servicing payment service providers (ASPSPs) must meet in order to benefit from an exemption from the obligation to implement the contingency mechanism under the RTS on SCA and CSC.
- Opinion on the use of electronic identification, authentication and trust services (eIDAS) certificates under the RTS on SCA and CSC.
Furthermore, the EBA extended the EBA Q&A tool to PSD2-related questions in order to support the effective application of the regulatory framework.
From a general supervisory point of view, in 2019 the EBA will contribute to the implementation of PSD2 and will monitor the application of the RTS on SCA and CSC also by setting up a dedicated group on APIs in order to address issues emerging from the industry.
Taking into account the enforcement of PSD2 and the emerging opportunities for consumers and institutions, the EBA will perform an assessment of the impact of FinTech on payment institutions and e-money institutions. In this regard, a thematic report will be published in 2019 on: (i) the current and perspective relationships with FinTech start-ups; (ii) the approach to innovative technologies; and (iii) the potential impact of Big Tech firms.
The EBA worked together with ESMA and EIOPA during 2018 on developing a framework aimed at improving the effectiveness of AML/CFT supervision across the EU and strengthening co-operation and information exchange between national supervisory authorities, both domestically and across borders.
The action of the ESAs also focused on the use of innovative technologies for the fulfilment of AML/CFT obligations by financial institutions. The technological neutrality of the EU provisions offers an opportunity to financial and non-financial institutions to explore new ways of performing customer due diligence. While innovations can potentially improve the AML/CFT controls, they can also present various risks as addressed under the opinion of the Joint Committee published in January 2018.
In 2019, the EBA will launch a programme for the review of national approaches to AML/CFT supervision, in order to assess the supervisory practices in each EU Member State. Furthermore, the EBA will complete the tasks assigned by the Council's action plan on AML/CFT and, with specific respect to FinTech, it will focus on the adequacy of existing AML law provisions on crypto-assets.
Jointly with the ESMA and the EIOPA, the EBA will also continue to enhance supervisory cooperation across the EU by publishing final guidelines on supervisory cooperation and information exchange. In addition, the publication of a second joint opinion on money laundering/terrorism financing risks, as mandated under Article 6(5) of the Anti-Money Laundering Directive and a revision of the existing risk factor guidelines are envisaged.
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