By Zack Fishman · June 29, 2020
European Union regulators want the region’s financial supervision to take advantage of digital tools, such as artificial intelligence, and to be prepared to regulate newly emerging business models, they said Monday.
The recommendations were responses to a European Commission consultation on digital finance. With its deadline having passed on Friday, the commission had requested input from EU authorities, banks, interest groups, experts and others to prepare an action plan to make regulations better suited for the digital age.
The commission noted in April that efforts to shape the plan — scheduled for release in the third quarter of 2020 — are happening during the COVID-19 pandemic, when more people are relying on digital financial services. Through a questionnaire, it asked respondents about obstacles to technology innovation, challenges to conducting finance online and potential solutions to improve regulations.
Several financial authorities that responded to the European Commission’s consultation had broadly similar visions for the future of the EU’s digital finance regulations: a rigorous, technology-infused system that promotes innovation.
The European Securities and Markets Authority said that while digital finance provides benefits such as speed and convenience, it also brings along risks around data privacy, security and discrimination. To create a strong regulatory framework to address these problems, one step the authority suggested was for the EU to standardize data, system security and legal requirements across nations.
“Cooperation around financial innovation at EU level is key to remove (market) fragmentation in the digital financial services market,” the authority said.
The ESMA also said rules should be technology-neutral — meaning they apply equally to businesses employing different technologies — to effectively support innovative ventures.
The European Banking Authority also supported technological neutrality and standardization in EU financial regulations. In addition, the EBA said a supervisory framework should be created for the use of AI in the sector and consumers should receive better digital and financial literacy instruction.
The European Insurance and Occupational Pensions Authority, meanwhile, highlighted the necessity for requirements and definitions in the insurance sector to change as new technologies arise. It also called for industry-specific datasets to be accessible for the sake of better information for companies and ease of switching providers for customers.
“In its response EIOPA highlights that a sound approach to financial innovation should strike a balance between enhancing financial innovation and ensuring well-functioning consumer protection and financial stability frameworks,” the authority said. “A level playing field and technological neutrality are crucial.”
The European Commission’s digital finance strategy action plan is a follow-up to its 2018 fintech plan, which was meant to encourage innovation in the financial market. It strengthened cybersecurity regulations, established “regulatory sandboxes” for fintech firms and created new rules to promote crowdfunding.