The European Commission (Commission) has at last published its much anticipated Digital Single Market (DSM) strategy, which should attract the Financial Services and Insurance sectors’ attention as they digitize their services and seek new investment opportunities.  However, more could be done to ensure these sectors benefit from the initiative.  Published as an action plan, the DSM contains no legislative proposals.  It does, however, set out the policy direction that the Commission wishes to pursue.  Proposals will follow to tackle barriers affecting on-line business.  16 proposals and a timeline for their release are available here.  In addition, the Commission has launched a competition (antitrust) sector inquiry into e-commerce (see our alert here).  

What is on the DSM agenda?  The strategy is built around three themes, available here

  • Improving online access – confronting various cross-border barriers holding back e-commerce, e.g. VAT compliance. 
  • Measures to promote advanced digital networks and innovative services – including returning to unresolved issues around investment in high-speed broadband, and revising the rules on media content.  The Commission will also investigate the role of on-line platforms and digital intermediaries, as well as address cybersecurity concerns.  
  • Measures to encourage digitization – including improving data flows, standard-setting, education and various e-government initiatives (e.g. an interoperable e-signature project).  

Certain barriers to digital trade fall outside the DSM strategy’s scope.  Negotiations on proposals affecting protection of personal data, cyber security for critical infrastructure and key sectors, including online banking, and payment services are already progressing separately.  The DSM strategy does not address national and regional questions arising out of inadequate implementation and application of EU legislation.  

Financial Services and Insurance

 The DSM strategy does not specifically target these sectors.  It is not yet clear how far the specific characteristics of these sectors, as well as their potential contribution as investors, will be accounted for in the implementation process.  In particular:

  • The Commission will shortly present an action plan on corporate taxation in the EU Single Market.  This will cover the challenge of integrating the digital economy, including on-line financial services, in direct taxation systems.  The Commission wants to ensure that profits are taxed where economic activities take place and value is created, and that aggressive tax planning by multinational corporations is avoided.  Provisions on the VAT treatment of financial services and insurance have not changed for more than 30 years – reform proposals were tabled in 2007 – and, arguably, these provisions no longer reflect market reality, particularly the cross-border market.  Separate proposals may be tabled to amend VAT rules to facilitate cross-border sales.  Unless specific tax concerns are addressed, the action plan may miss the opportunity to revitalize the sectors. 
  • Consumer contract law will be revised to enable sellers of tangible goods and non-financial services to rely on national laws for their contracts, remedies for non-performance and guarantee rights, as well as product-specific rules such as labeling.  A new online dispute resolution platform is due in 2016.  Separately, investor protection provisions across financial services and insurance legislation are being re-examined for regulatory consistency.  However, there appears to be little consideration of the digital dimension and the DSM. 
  • The Commission will present proposals in 2016 to incentivize investment in high-speed broadband networks.  The Commission acknowledges that incentives for private operators must be examined, but does not mention private investors in the DSM or the potential link to the Capital Markets Union initiative. 
  • Specific trust, security, and protection of personal data concerns affect the sector.  The Commission has concluded that fear of data breach discourages use of online banking and payment systems, but there is no mention of how to address this under the DSM.  Other aspects, such as barriers to digital trade caused by conflicting anti-money laundering rules, are not identified.  

A test of the DSM’s success will be how skillfully all sectors - including financial services and insurance - pull in its direction and how well pre-existing EU initiatives are integrated.  An initial test will be successful conclusion by the Commission, European Parliament, and Council (Member States) of negotiations on pending legislative proposals affecting: protection of personal data; cyber security for critical infrastructure and key sectors, such as online banking; and the new legal regime for payment services.  It will be essential to account for the emerging digital single market “dimension” in what are likely to be the first laws to emerge under DSM.