The EU should work on "a more future-oriented regulatory framework embracing digitalisation, with the aim of creating an environment where innovative FinTech products and solutions can be rapidly rolled out across the EU to benefit from the scale economies of the Single Market" (EU Commission draft FinTech Action Plan) And to attain this ambitious objective, the EU Commission conducted a public consultation which highlighted three goals and the measures to be taken to reach them: the Fintech Action Plan (still under development1).
Enable innovative models to reach EU scale
The first Chapter of the Action Plan focuses on measures which should enable innovative business models to scale-up at the EU level. It is well-known that clear and converging licensing requirements and European passports are most needed when it comes to helping national regulated companies going cross-border.
In this perspective, the Action Plan announces that the EU Commission will issue a proposal for an EU legal framework for investment-based and lending or loan-based crowdfunding platforms that allows them to benefit from the European passport.
Besides, the EU Commission promises to assess whether the current EU regulatory framework applies to cryptocurrencies and Initial Coin Offerings (see our news on this topic). It will also organise a roundtable in Q2 2018 to discuss the challenges and opportunities of cryptocurrencies, with a view of reporting on this later in 2018.
This seems particularly urgent given the multiplication of ICOs and cryptocurrency-based initiatives.
At last, the EU Commission will continue encouraging the establishment of so-called FinTech facilitators such as innovation hubs or regulatory sandboxes at the Member States level. The Commissions will notably present a Blueprint with recommendations for regulatory sandboxes (end 2018).
For Belgium, it will be interesting to see the reaction of the NBB and FSMA, as they have always opted for other tools than sandboxes.
Support the uptake of technological innovation of the financial sector
In the second Chapter of the Action Plan, the EU Commission acknowledges that "EU rules that predate the emergence of innovative technologies may not be technology neutral in practice" which is contrary to the well-known EU doctrine ("Technology-neutrality is one of the guiding principles of the Commission's policies").
As one of the remedies, the EU Commission draft Action Plan announces the establishment of a European FinTech Lab as of Q2 of this year. Through (practical) demonstrations and expert discussions in a non-commercial and technology neutral environment, the EU FinTech Lab aims at improving the regulatory and supervisory capacity and knowledge about new technologies such as authentication and identification technologies, distributed ledger technology (i.e., blockchain), artificial intelligence, deep learning and open banking standards.
The Action Plan also draws the reader's attention on the newly launched Blockchain Observatory and Forum (as part of a cross-sectoral Blockchain Initiative) that will carry out a study on the feasibility, governance and use of a European public Blockchain infrastructure to support the development of cross-border services. The early adoption of this technology in the financial sector combined with the other measures of the Action Plan should improve the EU's competitiveness and technological authority.
Enhance security and integrity of the financial sector
Last but not least, the Commission, underlined the urge for enhancement of cybersecurity. According to the draft Action Plan, "cyber risks undermine confidence and represent a threat to the stability of the financial system (the financial sector isapproximately 65% more likely to be targeted by cybercriminals than other sectors)".
The Commission states that FinTechs can both accentuate (think e.g. of the new kind of payment services) and mitigate these risks (think e.g. of all types of fraud detection services that can be provided by RegTechs).
In spite of recent legislative initiatives at the EU level about cyber hygiene, the degree to which firms (financial institutions in particular) are subject to standards on cyber securities varies across the EU. In this regard, the improvement of cooperation and coordination on the exchange of threat intelligence will surely contribute to the prevention and mitigation of cyber threats.
Therefore, the EU Commission announces that a public-private workshop will take place in Q2 of 2018 to assess the barriers limiting information sharing amongst market participants and public authorities.
The EU Commission also invites the European Supervisory Authorities to map the existing supervisory practices across financial sectors around ICT security and governance requirements. The ultimate goal is to point out the best practices and issue guidelines in this matter.
Another measure in the context of cybersecurity is the promotion of effective training and awarenessraising activities, through a Digital Education Action Plan, which aims at improving digital skills throughout the EU.