Is EU Regulation Ready for Fintech?
Serge Turbin, OPINION
Fintech is a booming sector at the intersection of financial services and technology. Increasingly, fintech startups and technology companies are entering the marketplace traditionally reserved for large financial institutions and intermediaries, such as banks and insurance companies. From TransferWise to Funding Circle, fintech firms are disrupting the status quo, by offering new products and services powered by digital technology. Fintech solutions are also widely impacting productivity, efficiency and innovation in other sectors and parts of society.
There is a huge potential for technological innovation, but it is exactly the financial sector that remains most heavily regulated by definition. Quite often, the policy solutions developed for the industrial reality of the 20th century come clashing with the present-day developments of the digital age. Fintech faces a complex regulatory environment that was designed for older business models and is slow to adopt change and embrace such developments and technologies as blockchain, algorithms and artificial intelligence, data analytics and the like.
Many countries launched policy initiatives to address the challenges and leverage the opportunities offered by fintech. The United Kingdom, an incontestable fintech leader in Europe, has developed a consistent approach to support the development of fintech. The Financial Conduct Authority engages constructively with innovative businesses, and seeks to remove unnecessary barriers to innovation. The Innovation Hub helps innovative businesses gain access to fast, frank feedback on the regulatory implications of their concepts, plans, and choices, so that new and established businesses are able to introduce innovative financial products and services to the market. Advice Unit provides regulatory feedback to firms developing automated models to deliver lower cost advice to consumers. And the regulatory sandbox is a programme allowing fintech firms test their innovative products, services, business models and delivery mechanisms in a controlled environment. With a view on the Brexit prospects, the French regulator, Autorité des Marchés Financiers, is pursuing its commitment to making the Paris financial market more appealing by launching AGILITY, a programme devoted to guiding financial firms through the French authorisation process. It will provide a range of services, notably helping financial firms authorised in the UK set up in France.
The European Commission realises the need to develop a pan-European regulatory response and a common approach to fintech. On 14 November 2016, it launched a Task Force on Financial Technology that aims to assess and make the most of innovation in this area, while also developing strategies to address the potential challenges that fintech poses. This internal task force brings together the expertise of Commission staff across several areas, such as: financial and digital services, digital innovation and security, competition and consumer protection. Fintech gained prominence in the mid-term review of the Capital Markets Union – the Juncker Commission’s flagship initiative of reducing fragmentation in financial markets, diversifying financing sources, strengthening cross-border capital flows and improving access to finance for businesses, particularly small- and medium-sized enterprises. The findings of the Task Force on Financial Technology will be presented at a high-level conference “#FinTechEU: Is EU Regulation Fit for New Financial Technologies?” on 23 March 2017. European Commission Vice-President Valdis Dombrovskis, overseeing the dossier, has signalled that the executive is cautious about overregulating the nascent sector. Rather than preparing a wide-ranging policy package on fintech, the European Commission will adopt a watchful policy response, sharing best national practices and introducing minor amendments in the existing laws.
Illustration: Marinus van Reymerswaele, The Money-changer and his Wife, 1540,