The European Commission has published its Fintech Action Plan as part of its strategy for a Capital Markets Union and the Digital Single Market.
The Commission’s plan is a result of the European Council and Parliament calling for a regulatory environment which allows fintech business models to be scaled up across the EU more easily while continuing to protect the security and integrity of the financial sector.
The proposals include:
Licensing of crowdfunding and ICOs
The Commission has identified that new services, such as crowdfunding platforms, do not always fall squarely in the EU regulatory framework. As a result, Member States are developing local regimes resulting in regulatory divergence.
This has resulted in the Commission’s most eye-catching proposal: a Crowdfunding Regulation to ensure that loan- and investment-based crowdfunding services are proportionately and uniformly regulated.
Significantly, crowdfunding platforms in the EU would be able to take advantage of a passport to provide their services throughout the EU.These are only proposals at this stage and the rules are unlikely to take effect before late 2022.
The Commission will continue to assess the challenges and opportunities of crypto-assets and initial coin offerings (ICOs), how the regulatory framework applies to them and whether the EU should take regulatory action.
Guidelines for sandboxes and hubs
In Q1 2019, the Commission plans to publish a report on best practice emerging from innovation hubs and regulatory sandboxes which support the scaling of innovative businesses in the EU.
Fitness of regulation for new technology
The Commission has identified current regulation and regulatory processes (such as paper-based disclosures) as a major obstacle for the uptake of fintech solutions.
An Expert Group will be established by Q2 2019 to review the fitness of the current regulatory framework for financial innovation.
The EU Blockchain Initiative
Bearing in mind that the potential of blockchain technology goes beyond financial services, the Commission intends to establish the EU Blockchain Initiative which will propose actions, funding measures and a framework to enable scalability, develop governance and standards, and support interoperability.
EU Fintech Lab
To encourage regulators to engage with fintechs and better understand the underlying technology, the Commission will host an EU Fintech Lab where European Supervisory Authorities and national regulators will be invited to engage with technology providers on specific innovations in a neutral, non-commercial space from Q2 2018.
The Commission recognises that an EU-wide fintech market will not reach its full potential without the development of open standards that make interoperability possible.
As such, it intends to work with industry and standard-setting bodies to develop the adoption of standards ensuring interoperability between systems.
The Commission also intends to:
- remove obstacles hindering the use of cloud services, and
- enhance cybersecurity by, for example, developing a coherent cyber threat testing framework.