European authorities urged to rethink fintech regulation

The EC’s Expert Group on Regulatory Obstacles to Financial Innovation, which BBVA is part of, has recommended four broad areas in which the bloc’s regulators need to focus their attention.

The recommendations came after the group was tasked with examining the application and suitability of European legal and regulatory frameworks towards the oversight of financial technology activities.

The main recommendations are broken down into these four sections:

• The need to respond to new and changed risks caused by the use of innovative technologies such as Artificial Intelligence (AI) and Distributed Ledger Technology;
• The need to remove fragmentation across the EU and ensure a level playing field between different participants in the financial services sector as they leverage new technologies;
• The necessity to reconcile data protection with the opportunities offered by fintech;
• The need to consider the potential impacts of fintech on consumers, from the perspective of financial inclusion and the ethical use of data.

Outlining their reasoning, the Group members, which include BBVA’s Global Head of Data Strategy, Alvaro Martín, said the recommendations were a call to action for policy makers.

They added these changes were needed to ensure that the potential of fintech to deliver greater choice and improved efficiencies in the provision of financial products and services was properly supported, and that regulation and supervision remained fit for purpose in the digital age.

The report states: “An updated regulatory framework should enable the benefits of Fintech to be leveraged, whilst maintaining high standards of consumer protection, market integrity and the stability of the EU financial system.”

“Delivered well, it should also have the effect of protecting and enhancing the attractiveness of the EU as a global financial centre.”

The far-reaching report from the Group goes on to recommend actions ranging from enhanced monitoring of market developments and emerging opportunities and risks, to more substantial measures such as the introduction of entirely new EU rules.

The Group’s recommendations are not specific to any business model or financial service or product but instead cut across the whole market.

In particular, the Group highlights a number of particularly important recommended measures:

• The need for a common understanding of the principles for explainability and interpretability of technology, especially AI, as measures to protect consumers and businesses and foster supervision;
• The creation of a regulatory framework built on the principle that activities that create the same risks should be governed by the same rules, with a view to ensuring adequate regulation and supervision and maintain a level playing field;
• The ending of regulatory fragmentation, especially in the area of customer due diligence/KYC, as an important step towards greater competitiveness;
• Preventing differentiated treatment of competing downstream services by large, vertically integrated platforms, in order to strengthen innovation and maintain consumer choices;
• The establishment of a comprehensive cross-sectoral and consistent user data-sharing framework, in order to promote innovation and competition and establish a level playing field amongst actors and foster competition;
• The monitoring of the impact on the increasing use of data and technology to provide financial services to consumers, in terms of financial inclusion and the ethical use of available data.

The most significant challenge is the entry of BigTechs such as Google and Amazon into the financial market

Commenting Dr Philipp Paech, associate professor of Financial Law at the London School of Economics and chairman of the Expert Group said: “Much of what is called ‘Fintech’ is already covered by EU law, albeit not very consistently.

“Apart from necessary clarifications and harmonisation of the existing rules, there are only few entirely new risks to consider. The most significant challenge is the entry of big techs such as Google and Amazon into the financial market, and closely connected to the former, the implementation of the data economy in financial services.

“The EU needs common answers to these questions, to foster an environment to support the scaling up of Fintech across the EU and home-grown global champions and to remain amongst the global standard setters in finance.”

BBVA was the only Spanish bank participating in the Group, which is made up of financial innovation experts from across the European Union, including representatives from French insurer Axa, British bank Barclays, Dutch bank ING and the University of Ireland.