EBA欧洲银行-Andrea-Enria-Lecture-on-FinTech-Utrecht-University_10页_236kb

FinTech: Regulatory Challenges and Open Questions

Core Content

Andrea Enria, Chairperson of the European Banking Authority (EBA), delivered a lecture at Utrecht University on 8 May 2017, addressing the regulatory challenges and open questions posed by FinTech innovations. The lecture highlighted the evolving financial landscape, driven by technological advancements that blur the lines between financial products and service providers, and the need for regulators to adapt accordingly.

Main Points

1. The Changing Financial Landscape

• Until the early 1990s, financial products and institutions were clearly defined and separated based on the risks they managed.
• FinTech has significantly disrupted this structure, leading to a more integrated and complex financial ecosystem.
• The EBA believes that financial regulation should not hinder innovation but rather support it to ensure efficiency and consumer satisfaction.

2. Key Regulatory Questions

Enria identified three main questions that regulators must address:

• New Risks: Do new FinTech products and services introduce new risks to financial stability, market confidence, and consumer protection?
• Regulatory Arbitrage: Is there a differential treatment of market players, leading to an unlevel playing field?
• Cross-Border Risks: Is there a risk of regulatory divergence across EU member states, potentially disrupting the Single Market?

3. EBA's Approach to Financial Innovation

The EBA follows a structured methodology to assess financial innovations:

• Characterise the innovation
• Identify market participants
• Assess potential benefits
• Identify and prioritise risks
• Analyze risk drivers
• Evaluate existing regulatory frameworks
• Determine if additional measures are needed
• Assess the need for a consistent EU approach

Case Studies

4. Virtual Currencies (VCs)

• VCs were first assessed in 2013, focusing on their use as a payment method.
• The EBA identified several risks, including price volatility, lack of consumer protection, and potential for financial crime.
• The EBA recommended:
  • Regulating specific entities like VC wallet providers and exchanges under AML rules.
  • Excluding VCs from being classified as payment services under PSD2.
  • Strengthening cross-border coordination to mitigate risks.
  • Discouraging regulated institutions from engaging with VCs.

5. Robo-Advice

• The EBA, in collaboration with ESMA and EIOPA, examined the rise of automated financial advice.
• Existing EU rules on financial advice were found to be generally applicable to robo-advice.
• The EBA concluded that no new regulations were needed, but ongoing monitoring is essential.
• Risks identified include algorithmic flaws, unclear liability, and consumer understanding issues.

6. PSD2: Account Information and Payment Initiation Services

• The EBA was tasked with developing technical standards for the revised Payment Services Directive (PSD2).
• Two new services were introduced: account information and payment initiation.
• The EBA ensured:
  • Third-party providers access bank accounts via secure interfaces.
  • Banks must provide the same level of availability and performance as their own customers.
  • Exemptions for strong authentication were extended based on transaction risk analysis.
  • Technological neutrality was promoted to foster innovation.

Towards a Holistic Approach

7. Need for a Broader Perspective

• The EBA acknowledges that addressing each innovation in isolation may miss the broader systemic impacts of FinTech.
• It calls for a deeper understanding of how FinTech is reshaping financial market structures and risk distribution.
• The EBA emphasizes the importance of maintaining an open and flexible regulatory mindset to adapt to new challenges.

8. Regulatory Taxonomy and Banking Definition

• The traditional EU banking definition, based on the First Banking Coordination Directive (1BCD), focuses on deposit-taking and loan provision.
• The Second Banking Coordination Directive (2BCD) expanded the list of permissible banking activities.
• The EBA notes the emergence of a third tier of financial firms using sandboxes to test FinTech innovations with limited regulatory requirements.
• The EBA advocates for strict enforcement of current rules and close monitoring of any regulatory circumvention.

Future Work

9. EBA's Ongoing Initiatives

• The EBA is launching a comprehensive mapping exercise of FinTech activities across all 28 EU Member States.
• It is also examining credit intermediation by firms outside the EU solo prudential framework.
• Key areas of focus include:
  • The regulatory status of these firms (solo, bespoke, or no prudential regime).
  • The scope of their permitted activities.
  • Use of Article 9(2) of CRD for deposit-taking.
  • Classification within banking groups.
  • Cross-border implications and the need for regulatory convergence.

10. Expected Deliverables

• A discussion paper on FinTech is planned for late summer 2017.
• The EBA aims to continue its engagement with stakeholders and researchers to ensure a balanced and forward-looking regulatory approach.

Conclusion

Enria stressed that while the current regulatory framework is being adapted, the journey to fully understand and regulate FinTech will be long. He called for vigilance, openness, and flexibility from regulators, and highlighted the importance of academic research in avoiding group thinking and ensuring a robust regulatory response.