How to harness the opportunities presented by technology-enabled innovation in financial services
The European Commission has published an Action Plan (PDF 538 KB) on how to harness the opportunities presented by technology-enabled innovation in financial services (Fintech).
The ambition is 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. The Commission also sees this as part of the Capital Markets Union (CMU) initiative , to create both a properly functioning single market for consumer financial services and a Digital Single Market.
Within the Action Plan the Commission is proposing a Regulation on crowdfunding.
The Commission's Action Plan proposes 23 steps to enable innovative business models to scale up, support the uptake of new technologies, and to enhance cybersecurity and the integrity of the financial system. The steps include:
The Commission observes that existing national regimes for crowdfunding are often conflicting and hamper the development of a Single Market for crowdfunding services.
The Commission therefore proposes a Regulation on investment-based and lending-based crowdfunding service providers (ECSP). This will offer a European cross-border passporting regime for those market players who choose to apply to operate as an ECSP, under the supervision of the European Securities Markets Authority (ESMA).
The Regulation sets out requirements on ECSPs:
In addition, investor protection is reinforced through requirements on:
Responsibility for authorisation, supervision and administrative sanctions will be given to ESMA, which will also have to prepare detailed rules and guidelines to flesh out the Regulation.
In Ireland the Department of Finance published a consultation paper on crowdfunding which closed on 2nd June 2017. The consultation paper invited comments on any aspect of crowdfunding and the intention at the time was to introduce domestic legislation as part of the wider IFS 2020 Action Plan.
The paper provided an overview of the types of crowdfunding and its activity in Ireland and outlines what the Department of Finance consider to be risks most relevant to crowdfunding in Ireland:
Risks, which to the most part, have been addressed by the proposed Regulation. It will be interesting to see how this transpires in Ireland and also to see if crowdfunding providers will subject themselves to the requirements proposed in the Regulation as a means of gaining greater scale through cross-border operations.
Towards the end of 2016, under their remit to monitor emerging risks for consumers and financial institutions, the Joint Committee of the European Supervisory Authorities (the ESAs) sought feedback to a Discussion Paper on the use of “big data” by financial institutions. They have now issued their final report, which concludes that any legislative intervention at this point would be premature, given that existing legislation should mitigate many of the risks identified.
The ESAs define big data as the collection, processing and use of high volumes of different types of data from various sources, using IT tools, in order to generate ideas and solutions or to predict certain events or behaviours. They observe the increase in the use of big data, albeit to varying extents across the sectors and across the EU. They recognise that its use could transform the way products and services are provided, which could provide benefits for consumers and financial institutions.
However, there are attendant risks. The potential for errors could lead to incorrect decisions taken by financial services providers, for example, and the increasing segmentation of the customer base is influencing market and product access. The ESAs note that consumers should be made aware of the risks.
Taken into account the benefits and the risks associated with the use of big data, the ESAs have concluded that any legislative intervention at this point would be premature. They note that existing legislation should mitigate many of the risks identified. They will, however, continue to monitor developments and invite financial firms to develop and implement good practices on the use of big data.