In addition to the new Action Plan on
Capital Markets Union (see our report here), on the very same day, the 24
September 2020, the EU Commission also presented its Digital Finance Package. This very board package
consists of: 1) the Digital Finance Strategy; 2) the Retail Payments
Strategy; 3) the legislative proposal for an EU regulatory framework for
digital operational resilience and 4) the legislative proposals for
crypto-assets.
The package aims to improve Europe's
global competitiveness in financial services and products provision not only by
boosting consumer choice but also by ensuring consumer protection and financial
stability. With the coronavirus pandemic and the rise in the use of digital
services more than before, these sorts of initiatives from the Commission are
more than welcome. Embracing digital innovation should not only create consumer
choice, but also widen access to financial services for consumers, increase
business opportunities for firms, especially SMEs, and thus facilitate Europe’s
economic recovery.
The package is complex and far
reaching. The strategies are necessarily general providing high level overall
strategic aims, but some of the legislative proposals are concrete and
ground-breaking. Most importantly, the package of proposals has been drafted
based on careful consultation and intensive cooperation with business
stakeholders and consumer advocates through public consultations and the
innovative Digital Finance Outreach programme of DG FISMA over the summer (on
which we reported here) that enabled anyone interested to get
involved in shaping the solutions. DG FISMA continues its public approach, it
is now holding biweekly seminars on the Digital Finance Package and these are
open for attendance for anyone interested (see here). The first seminar focused on the Digital
Finance Strategy and so does this post.
The first and broadest element of the
Digital Finance Package is the Digital Finance Strategy. It provides
for the overall strategic objective to embrace digital innovation and the ways
in which the more concrete proposals and the existing legislative framework
fits within the picture. As the Commission rightly states: 'The future of
finance is digital: consumers and businesses are more and more accessing
financial services digitally, innovative market participants are deploying new technologies,
and existing business models are changing.' To reflect this the strategy
is focused around four key priority areas:
1) Tackle fragmentation in
the Digital Single Market: this is the most general aim that
intended to enable consumers to access financial services and products fully
remotely.
To this effect, on the one hand, the
strategy recognizes that the key to achieving this is the fitness of onboarding
process (the recruitment of new customers) for digital age for which a crucial
element is the interoperability of digital identities. Digital identification
of customers remotely will be enabled with a review of the current regulatory
framework provided by Regulation (EU) No 910/2014 on electronic identification
and trust services for electronic transaction. In addition to securing a
framework for the development and use of digital identities, this regulation
should also enable data sharing between providers to facilitate the advantages
of open finance. Taking identification fully online also requires the
strengthening of the anti-money laundering and terrorism financing
legislation.
The other aspect of having access to
digital financial services and product is passporting of firms. Passporting
enables consumers and businesses to have access to cross-border services
provided by firms established and supervised in another Member State in line
with commonly agreed rules. Although passporting currently may work for
mainstream providers, it does not seem to work well for fintech companies that
comprise the bulk of the digital finance ecosystem. To overcome this, the
Commission is planning a one-stop-shop licensing system for these firms that
combined with passporting rules should help their operation throughout the EU.
In addition, special passporting rules for areas of particular interest such as
crowdfunding are also being considered. Finally, the Commission proposed the
establishment of a new EU Digital Finance Platform to facilitate cooperation
and communication between firms and supervisory authorities.
2) Adapt the EU regulatory
framework to facilitates digital innovation: this aim relates to
the creation and the review of the existing regulatory framework to fit the
requirements of digital age. Within this aim, the EU Commission presented a
legislative proposal on crypto-assets and placed as a strategic aim
for a technology-neutral regulatory framework. It also pledges for
clarifying the supervisory standards on the application of this
legislative framework to artificial intelligence applications.
3) Create a European
financial data space to facilitate data driven innovation: this
dimension is connected to the European strategy for data and aims to facilitate access
to data and data sharing within the EU, creating broader access to public and
private data and real time data sharing. As part of these efforts, the
Commission aims to set up a common financial data space through a number of
more specific measures: promote innovative IT tools to promote supervision
and promote business to business data sharing in EU financial sector and
beyond. It is important to note that this open finance initiative is
not going follow the UK's approach in mandating data sharing for firms
(see our report here). Participation will be
voluntary. The Commission will therefore propose legislation on a
broader open finance framework that will build on the upcoming initiative
focusing on data access, including the upcoming Data Act, and the Digital Services Act. Finally,
the Commission is also reviewing its competition approach and the
upcoming review of PSD2 is also going to be part of this framework.
4) Address new challenges and risks that come with digital innovation: with this aim, the EU Commission aims to work on future-proofing EU prudential and conduct supervision and regulation that should be fit to address both traditional firms as well as new entrants, especially technology companies that are increasingly present on financial markets. The objective will be proportionate regulation and supervision, based on the principle of “same activity, same risk, same rules” and pay particular attention to the risks of significant operators.
