Home Policy & Governance EU Digital Finance Platform to map fintech growth and support cross-border testing

EU Digital Finance Platform to map fintech growth and support cross-border testing

EU Digital Finance Platform: the new service currently comprises a ‘European Forum for Innovation Facilitators Gateway’ and ‘Digital Finance Observatory’

A European Commission-hosted website with the ultimate aim of helping private-sector innovators to ‘scale up’ fintech solutions has launched.

The EU Digital Finance Platform is billed as a ‘collaborative space’ that aims to encourage interaction between European supervisory authorities and innovators seeking to navigate the fragmentation inherent in nations’ different regulatory regimes.

The platform comprises a ‘European Forum for Innovation Facilitators Gateway’, which will act as an access point to supervisors, with information about the growing number of national innovation hubs, regulatory sandboxes and licensing requirements; and a ‘Digital Finance Observatory’ offering interactive features such as a ‘Fintech Map’ to document the ‘fintech community’ (companies can enter information about themselves) and a section where users will be able to upload research.

The ‘Gateway’ part will also host ‘functionalities’ related to cross-border testing – a development that should enable firms such as fintech companies to involve multiple national authorities in the testing of new products or applications. This has long been a significant practical, regulatory and legal challenge for those developing fintech solutions as they battle to get a handle on how procedures differ between countries.

The platform, created by the Commission in collaboration with the European Supervisory Authorities (ESAs), will also provide updates on the European Forum for Innovation Facilitators (EFIF), which was established in 2019 following a joint-ESAs report on regulatory sandboxes and innovation hubs that identified a need for action to promote better co-ordination and co-operation between innovation facilitators to help fintech growth.

Legislation alone will not do the trick’

The initiative, announced more than 18 months ago when the European Commission presented its Digital Finance Strategy, was launched via an online event kicked off by the EU’s financial services commissioner Mairead McGuinness. Her remarks were followed by an explanation of the platform’s key functionalities, a panel discussion on fintech innovation and closing remarks by Verena Ross, chair of the Paris-headquartered European Securities and Markets Authority (ESMA).

“National supervisors have made big efforts to improve what they offer to the companies they work with but I think we all know that we have to go further,” McGuinness said, pointing out that “especially when it comes to services, the [European] single market is still far from complete.”

Explaining one of challenges, she told the online audience on 8 April that “not all” innovative new services and applications “fit neatly” into the EU’s ‘passporting’ system – whereby any firm authorised in an EU or European Economic Area (EEA) country on the basis of common rules can offer financial services or products across the single market – “so this can make it too difficult for firms, particularly smaller ones, to scale up their activities across the EU.”

Legislation can help. For example, McGuinness mentioned the EU’s relatively high-profile forthcoming ‘MiCA’ (Markets in Crypto Assets) rules (“member states and the European Parliament are now set to enter final negotiations for an agreement”) and a distributed ledger technology (DLT) pilot that “will soon enable market players to safely experiment with issuing, trading and settling shares and bonds using blockchain technology” (she added that this “might lead to more far-reaching changes to our legislation, depending on the lessons we learn”).

But, explaining the new platform, she said that “legislation alone will not do the trick” and that national efforts such as regulatory sandboxes “just don’t go far enough” to help at a cross-border level.

‘Complement and enhance’ EFIF’s work

In terms of the practicalities of the platform, companies will be able to fill in and upload a standard form to notify supervisors they want to be involved in the process. Meanwhile, a co-operation tool will give authorities working on the same case the option to exchange views and documents through the platform. National authorities will not, however, be obliged to take part in cross-border testing.

During the webinar Christine Mai, a policy officer in the Commission’s Directorate-General for Financial Stability, Financial Services and Capital Markets Union (DG Fisma), showcased three ‘request types’: multi-sandbox testing; observing sandbox testing; and sharing of test findings.

Further features are due to be added to the platform next year. “One idea we are discussing with national supervisors and other market participants is that of a Data Hub,” said McGuinness, going on to say that “maybe we could envisage initiatives inviting them to work with each other, supervisors and experts, to create synthetic data for specific use cases where data is actually hard to come by.”

In a separate initiative, the Commission, working closely with the ESAs, is also setting up an ‘academy’ to offer training “on all aspects of digital finance”, McGuinness said.

ESMA’s Ross described the platform as “about regulators being innovative ourselves”, saying that supervisors “should aim to find common approaches to innovation across the [European] Union where possible”. The platform will “complement and enhance” the work of EFIF, which, she said, has held 12 meetings over the past three years bringing together European and national competent authorities, experts and fintech companies to discuss topics including tokenisation, DLT, stablecoins, artificial intelligence (AI), ‘Big Data’, green fintech and open finance. Each meeting, she said, had seen a turnout of about 60 people.

Seeking clarity over sandbox schemes

The webinar’s panel discussion, entitled ‘Financial innovation made in the EU: what next?’ and moderated by the Commission’s digital finance unit head Jan Ceyssens, featured: Banca d’Italia deputy governor Alessandra Perrazzelli; Finanzmarktaufsicht (FMA) Austria managing director for securities supervision Birgit Puck (who is also chair of ESMA’s financial innovation standing committee); European Fintech Association president Marc Roberts; European Digital Finance Association president Maria Staszkiewicz; European Banking Federation chief executive Wim Mijs; and Michaela Koller, director-general of European insurance and reinsurance federation Insurance Europe.

Roberts described the platform as “really the right way to go”, while Mijs described it as both “visionary” but also “overdue”. “If you look back a few years ago, one of the big problems [was] always fragmentation but also complexity,” Mijs said. “So, if you were an innovative firm the treatment was completely different by supervisors.” He joked: “You either got sent to a sandbox or you got sent to the desert.”

While welcoming the facilitation of cross-border testing, Staszkiewicz suggested that the growing number of EU-backed sandbox initiatives could leave companies uncertain which regimes or procedures to follow. She referred to the Commission’s AI act proposal (unveiled one year ago), which pushes for AI sandboxes, and the plan to create an EU ‘blockchain sandbox’ (the Commission last month launched a call for tenders to contract a consortium to ‘facilitate and operate a pan-European regulatory sandbox for DLT in particular blockchain’ alongside other services).

“It would probably be convenient to make clear where, for example, exactly a DeFi [decentralised finance] company can apply: the blockchain sandbox or the cross-border sandbox,” said Staszkiewicz.

Staszkiewicz also referred to opportunities and challenges that would be created by the planned Data Hub, for example related to data standardisation and data quality. “It’s such an important topic and requires cross-sectoral discussion,” she said.

FURTHER READING

‘European Commission adopts new digital finance package’ – our news story (26 September 2020) on the new digital finance package

European Commission consults on digital finance and retail payments’ – our news story (23 April 2020) on consultations that informed the Digital Finance Strategy

REGISTER NOW

Interested in how governments and state authorities can encourage fintech innovation? REGISTER NOW for the inaugural Global Government Fintech Lab, being held in Tallinn, Estonia, on Wednesday 1 June 2022. Our agenda includes a session asking ‘How can governments help the fintech sector to grow?’ featuring Andrés Barragán, chief of staff in Spain’s Public Treasury; Dr Ben-Benedict Hruby, senior legal expert and policy advisor in Austria’s Ministry of Finance; and European Fintech Association board member Taavi Tamkivi confirmed as speakers.

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Ian is editor of Global Government Fintech and also writes for media including City AM and #DisruptionBanking. He is former UK director for the pan-European media network Euractiv (2011-2018), editor of Public Affairs News (2007-2011) and news editor of PR Week (2000-2007). He was shortlisted for ‘Editor of the Year’ at the British Society of Magazine Editors (BSME) Awards in 2010. He began his career in Bulgaria at English-language weekly the Sofia Echo.