A European Commission (EC) Expert Group has called on regulators to respond to the changing nature of fintech by adapting the rule book and legal frameworks to encourage innovation and dampen emerging risks.
The EC’s Expert Group on Regulatory Obstacles to Financial Innovation comprises representatives from BBVA, Axa, Barclays, ING, the University of Ireland and the London School of Economics among its 14-strong membership.
The formation of the group caused a bit of a stir when it was first announced, with fintech firms accusing the EC of failing to give startups a voice, instead packing the body with traditional financial institutions.
Big banks concerns have been addressed in the report, which urges the creation of a regulatory framework built on the principle that activities that create the same risks should be governed by the same rules, with a view to ensuring adequate regulation and supervision and maintaining a level playing field.
More broadly, the Expert Group has recommended four areas in which the bloc’s regulators need to focus their attention:
- The need to respond to new and changed risks caused by the use of innovative technologies such as Artificial Intelligence (AI) and Distributed Ledger Technology;
- The need to remove fragmentation across the EU and ensure a level playing field between different participants in the financial services sector as they leverage new technologies;
- The necessity to reconcile data protection with the opportunities offered by fintech;
- The need to consider the potential impacts of fintech on consumers, from the perspective of financial inclusion and the ethical use of data.
Actions range from enhanced monitoring of market developments and emerging opportunities and risks, to more substantial measures such as the introduction of entirely new EU rules.
Commenting Dr Philipp Paech, associate professor of Financial Law at the London School of Economics and chairman of the Expert Group says: “Much of what is called ‘fintech’ is already covered by EU law, albeit not very consistently.
“Apart from necessary clarifications and harmonisation of the existing rules, there are only few entirely new risks to consider. The most significant challenge is the entry of Big Techs such as Google and Amazon into the financial market, and closely connected to the former, the implementation of the data economy in financial services.”