The European Commission has today unveiled an Action Plan on how to harness the opportunities presented by technology-enabled innovation in financial services (FinTech).
The Commission writes in its statement that “Europe should become a global hub for FinTech, with EU businesses and investors able to make most of the advantages offered by the Single Market in this fast-moving sector. As a first major deliverable, the Commission is also putting forward new rules that will help crowdfunding platforms to grow across the EU’s single market.”
The objective of the Action Plan is to “enable the financial sector to make use of the rapid advances in new technologies, such as blockchain, artificial intelligence and cloud services. At the same time, it seeks to make markets safer and easier to access for new players. This will benefit consumers, investors, banks and new market players alike. In addition, the Commission is proposing a pan-European label for platforms, so that a platform licensed in one country can operate across the EU.”
The Action Plan is part of the Commission’s efforts to build a Capital Markets Union (CMU) and a true single market for consumer financial services. It is also part of its drive to create a Digital Single Market. The Commission aims to make EU rules more future-oriented and aligned with the rapid advance of technological development.
The FinTech Action Plan
The Commission highlighted that the financial sector is the largest user of digital technologies and a major driver in the digital transformation of the economy. The Action Plan sets out 23 steps to enable innovative business models to scale up, support the uptake of new technologies, increase cybersecurity and the integrity of the financial system, including:
- The Commission will host anEU FinTech Laboratory where European and national authorities will engage with tech providers in a neutral, non-commercial space;
- The Commission has already created anEU Blockchain Observatory and Forum. It will report on the challenges and opportunities of crypto assets later in 2018 and is working on a comprehensive strategy on distributed ledger technology and blockchain addressing all sectors of the economy. A distributed ledger is an information database that is shared across a network. The best-known type of distributed ledger is blockchain.
- The Commission will consult on how best to promote thedigitisation of information published by listed companies in Europe, including by using innovative technologies to interconnect national databases. This will give investors far easier access to key information to inform their investment decisions.
- The Commission will run workshops to improve information-sharing when it comes tocybersecurity;
- The Commission will present a blueprint withbest practices on regulatory sandboxes, based on guidance from European Supervisory Authorities. A regulatory sandbox is a framework set up by regulators that allows FinTech startups and other innovators to conduct live experiments in a controlled environment, under a regulator’s supervision. Regulatory sandboxes are gaining popularity, mostly in developed financial markets.
Regulation on Crowdfunding
Crowdfunding improves access to funding especially for start-ups and other small businesses. A start-up can present its project on an online platform and call for support in the form of a loan (‘peer-to-peer lending’) or equity. Investors receive a financial return for their investment. It is currently difficult for many platforms to expand into other EU countries. This is why crowdfunding in the EU is underdeveloped as compared to other major world economies, and the EU market is fragmented. One of the biggest hurdles is the lack of common rules across the EU. This considerably raises compliance and operational costs and prevents crowdfunding platforms from expanding across borders.
Today’s proposal will make it easier for these platforms to offer their services EU-wide and improve access to this innovative form of finance for businesses in need of funding. Once adopted by the European Parliament and the Council, the proposed Regulation will allow platforms to apply for an EU label based on a single set of rules. This will enable them to offer their services across the EU. Investors on crowdfunding platforms will be protected by clear rules on information disclosures, rules on governance and risk management and a coherent approach to supervision.
The mid-term review of the CMU Action Plan of June 2017 stressed the potential of FinTech to transform capital markets by bringing new market players and more efficient solutions, increasing competition, and lowering costs for businesses and investors. It announced that the Commission would establish a comprehensive approach to enable FinTech and deepen and broaden EU capital markets by integrating the potential of digitisation.
To prepare the FinTech Action Plan, the Commission carried out a public consultation in March 2017 to gather stakeholders’ views on the impact of new technologies on financial services. In responding to the public consultation, many respondents underlined that FinTech, and technological innovation in general, were drivers of financial sector development, with huge opportunities in terms of access to finance, operational efficiency, cost-saving and competition.
Input for the proposal on crowdfunding was gathered during preparatory work, including notably the implementation of the CMU Action Plan of 2015, the public consultation of the CMU Mid-term review and the FinTech consultation of March 2017.