A plan from the European Comission to promote fintech (part 1)

On the 8th of March of 2018 the European Commission published an Action Plan to take advantage of the opportunities offered by the technological innovation aimed at the financial services (FinTech), and with the objective of repositioning Europe, it’s institutions and companies, in the place they are entitled to by law, as proven by the important volume of FinTech startups in our continent.

Written by: Carlos Galán,  PhD in Informatics and lawyer specialized in IT law. Advisor for Addalia

This initiative, which intends to counteract the rise of realities coming from EEUU and Asia, likewise pursues making the most of the advantages offered by the Single Market in this rapidly evolving market.

The main points in this Action Plan are nine. In this post we will go over the first four, and over the following weeks we will deal with the remaining five.

1. Allow innovative commercial models to grow in the EU through clear and consistent regulatory requirements

The activity of the financial sector’s institutions is subject to authorization and supervision according to their activities, services or products, regardless of if they use traditional or innovative means to provide such services. Based on this, the EU pursues that, depending on the services and products being offered, the companies can be authorized by the national or EU legislation or even not be subject to any specific regulation related to financial services.


Identification and electronic signatures in european union law

The essential actions to reach this goal focus on:

  • A proposed UE Regulation on crowdfunding for business service providers, based on investment and loans. The proposal aims to guarantee an appropriate and proportioned regulatory framework that allows crowdfunding platforms that want to operate on a cross border level to do so with a comprehensive regime of authorizations under a unified supervision.
  • invite, in the first trimester of 2019, the European Supervisory Authorities (ESAs), to examine and compare the current authorization and licensee models, in relation to the innovative commercial FinTech models, explore how the national authorities apply proportioned and flexible mechanisms on financial services, and point out when these national authorityes must publish directives or present recommendations to the Commission about the need to adapt the UE financial services legislation.
  • Continue supervising during 2018 the evolution of crypto-assets (cryptocurrency) and Initial Coin Offerings (ICOs) with the respective ASE, the European Central Bank, the Financial Stability Board (FSB) and other international law issuers to determine, based on the risk evaluation, if a regulatory action on a EU level may be necessary.

2. Increase of the competition and cooperation among the market agents through common standards and interopable solutions

The production and provision of financial services requieres the different value chain operators to cooperate and interact. The UE FinTech market will not reach its highest potential without the development of open standards that increase competition, improve interoperability and simplify the exchange and access to data among the market agents.

The essential actions the Commission has planned to reach this goal are:

    • In the fourth trimester of 2018, the Commission will help to develop more coordinated perspectives in relation to the regulation applicable to FinTech, through a joint effort with the main standardization bodies, such as the European Committee for Standarization and the International Organization for Standarization (ISO), including the blockchain area.
      • During the course of 2019, and with the Commission’s support, APIs that satisfy the Payment Services Directive and the General Data Protection Regulation will be developed, as the basis for an European open payment ecosystem.

3. Facilitate the appearance of innovative business models in the EU through innovation enablers.

The innovative companies, taking advantage of the economies of scale, should be able to extend their services to the highest amount of users possible, using authorization mechanisms applicable in all Europe (something similar to a European regulatory passport). This initiative would be specially useful to recently created companies and those other that use innovative technologies or models with a functioning model that could differ from the practices and standards in force.

To reach this goal, the Commission has planned the following essential actions:

      • Based on the recent work carried out to analyze FinTech enablers, the Commission invites the European Supervisory Authorities (ESAs) to carry out additional analysis at the end of 2018 to identify better practices and, in this case, issue directives on these enablers.
      • Accordingly, the Commission encourages the competent authorities of the Member States and the EU to launch initiatives to facilitate innovation on the base of the mentioned best practices. It proposes the ESA as the necessary supervision element, includes the coordination and wide circulation of information about innovative technologies, as well as the establishment of innovation centers and a closed testing environment (sandbox)
      • The publishing of a Report, for the first trimester of 2019, about the base of the previous activities, in which the Commission will include the best practices for sandboxes.

4. Revise the suitability of the current regulation and guarantee safeguards for the new technologies in the financial sector

Even though technological neutrality is one of the guiding principles of the Commission’s policies, the EU regulations previous to the appearance of innovative technologies may not be, in practice, technologically neutral for such innovations. Here are some examples: requirements or preferences or required physical presence for identification, the lack of clear and harmonized processes to identify consumers and companies online, always in compliance with the regulation on prevention of money laundering and data protection.

The main action proposed by the Commission is to form a group of experts to evaluate, in the second trimester of 2019, if there are unjustified regulation obstacles in FinTech innovation in the current regulatory framework of financial services.

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