European Commission Outlines its Action Plan for FinTech

The European Commission has issued a Communication on FinTech to the European Parliament, the European Council, the European Central Bank, the European Economic and Social Committee and the Committee of the Regions.

The Communication sets out the Commissions Action Plan for FinTech, building on responses from the Commissions public consultation on its policy approach to FinTech, which ran from March to June 2017, and on the work of the Task Force on Financial Technology which was established in November 2016. The Action Plan is part of the Commissions efforts to build a Capital Markets Union and a true single market for consumer financial services. It is also part of its drive to create a Digital Single Market. The Communication is accompanied by Frequently Asked Questions on FinTech and a factsheet.

At this stage, the Commission considers that there is limited need for regulatory or legislative action or reform. However, the outcome of ongoing monitoring and assessment of innovative technologies may point to the need for regulatory action at EU level in the future. The current Action Plan is concerned with initiatives designed to facilitate the emergence of innovative models throughout the EU (through sandboxes and similar approaches), to enable innovative models to scale up (through consistent licensing, common standards and interoperability). The Commission also aims to improve the uptake of technological innovation in the financial sector, by ensuring the suitability of the regulatory regime, reducing barriers to entry for innovative firms such as cloud service providers and, in particular, harnessing the potential of blockchain and other distributed ledger technologies. The Action Plan further outlines planned initiatives to strengthen cybersecurity as well as the integrity of the financial system.

An Annex to the Communication sets out a Workplan for 23 separate initiatives to be undertaken either by the Commission itself or by the European Supervisory Authorities. In summary these are:

• To enable innovative models to scale up through consistent licensing: (i) the Commission has published a separate legislative proposal harmonising licensing requirements and providing an EU passport for Crowdfunding services providers; (ii) the Commission will continue monitoring developments of crypto-assets and Initial Coin Offerings and assess, by Q4 2018, whether regulatory action is required at EU level; (iii) the ESAs are requested to map current authorizing and licensing approaches for innovative FinTech business models and, by Q1 2019, to provide any necessary guidance to national regulators or recommendations for adapting EU legislation.
• To develop more coordinated approaches on standards for FinTech, the Commission will liaise with international standard-setting bodies, by Q4 2018.
• To foster interoperability, the Commission will support industry-led efforts to develop, by Q2 2019, standardized application programming interfaces compliant with the Payment Services Directive and the General Data Protection Regulation.
• To facilitate the emergence of innovative technologies, the ESAs are asked to facilitate supervisory cooperation, by coordinating and sharing information on innovative technologies and on establishing and operating innovation hubs and regulatory sandboxes. The ESAs are also asked to ensure consistency of supervisory practices. The Commission will provide a report on best practices for regulatory sandboxes by Q1 2019.
• To remove barriers to technological innovation in the financial sector and support its uptake, the Commission will establish an Expert Group to identify any unnecessary regulatory obstacles by Q2 2019.
• To facilitate use of cloud services, the Commission invites stakeholders to develop cross-sectoral self-regulatory codes of conduct to facilitate switching between cloud service providers by Q2 2018 and asks the ESAs to examine whether there is a need for new or additional guidelines on outsourcing to cloud service providers by Q1 2019. The Commission will encourage and facilitate the development of standard contractual clauses for cloud outsourcing by financial institutions by Q2 2019.
• To further the work on harnessing the potential of blockchain, the Commission will continue to work on a comprehensive strategy on distributed ledger technology and blockchain addressing all sectors of the economy. The Commission launched the EU Blockchain Forum and Observatory in February 2018, to assist in tackling difficulties arising from the use of blockchain, such as disintermediation, trust, security and traceability. The Forum will support cross-border cooperation on practical use cases and be an open forum for discussing and developing new ideas. In Q2 2018, the Commission also intends to consult on the digitization of regulated information about companies listed on EU regulated markets. That consultation will include the possible implementation of a European Financial Transparency Gateway based on distributed ledger technology.
• To improve knowledge of FinTech among regulators, the Commission proposes to establish and host an EU FinTech lab to provide training to regulators and supervisors and share knowledge on new technologies via demonstrations, expert discussions and workshops. From Q2 2018, the lab will meet four times per year.
• To increase cyber-security in the EU financial system, the Commission plans a public-private workshop in Q2 2018 to examine how barriers to information-sharing on cyber threats can be removed. The ESAs are asked to ESAs to evaluate the costs and benefits of developing a cyber resilience testing framework for significant market participants and infrastructures by Q4 2018, and, by Q2 2019, to map the existing supervisory practices across financial sectors around ICT security and governance requirements with a view to producing guidelines or technical advice on regulatory changes where appropriate.

View the Communication and the Workplan.

View the FAQs.

View the factsheet.

View the Commission press release.

View the Commission's March 2017 consultation and summary of responses.