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FinTech: European regulators on the attack

Last March 23 was held a conference on FinTech in Brussels, called “#FinTechEU – Is EU regulation fit for FerrariPollini fusionnew financial technologies?”, organized and promoted by the European Commission. In the conference, which have seen the participation of institutions and operators from all Europe, the Commission presented an action plan on consumer protection in the financial system (Consumer Financial Services Action Plan).

The action plan, aimed at providing to consumers greater choice and better access to financial services across the European Union, look at the financial system in its entirety, insurance system included: “Be it when opening a bank account, when buying car insurance or asking for credit: as soon as there is a cross-border dimension, things get complicated. Today we map out a plan to give consumers better products and more choice, improving clarity and protection of financial services.”said Věra Jourová, Commissioner for Justice, Consumers and Gender Equality.

The Commission has identified three main points of work:

Increase consumer trust and empower consumers when buying services at home or from other Member States (aiming, among other things, at more transparent pricing of car rental insurance and easier no-claims bonus for drivers (‘bonus-malus’) abroad), reduce legal and regulatory obstacles affecting businesses when seeking to expand abroad (working on common creditworthiness assessment criteria and facilitating the exchange of data between credit registers) and support the development of an innovative digital world (exploring the use of electronic identification and trust services by the private sector for checking the identity of customers and monitoring the practices of digital providers to decide if rules for selling financial services remotely should be updated).

In order to help the FinTech sector to be competitive and operate freely across the EU, as well as to ensure rules flexibility and consumers transparency and security, the Commission intends to focus on three core principles: technology-neutrality, proportionality and improved integrity.

Furthermore, alongside with the action plan, the Commission launched a FinTech consultation, aiming to gather information on the impact of FinTech on the financial sector. The consultation, seeking “input in terms of stakeholders’ perspectives on new technologies’ impact on the European financial services sector“, will help to assess whether EU regulatory and supervisory rules are adequate in order to fosters technological innovation and identify the changes to make in line with the three core technology principles mentioned above.

The consultation, that will close the doors on 15 June 2017, spaces from “traditional” technologies associated with the FinTech phenomenon, such as cryptocurrencies and Distributed Ledger Technology (Blockchain), to new themes such as the robo-advice, an application of AI and Big Data that replaces the face-to-face savings and investment advice with online and automated guidance and execution.

The broad scope of new FinTech technologies taken in consideration by the European Commission documents, both the action plan and the consultation, is pivotal if we consider that not only financial institutions are continuing to invest on them (spending on FinTech is expected to reach $15 billion USD in 2017 in Europe alone), but also that this may be perceived as a “mandatory choice” to make, considering consumers appreciation in respect of new FinTech solutions. As an example, a recent study by Accenture, including a survey of 33,000 consumers around the world, showed that 7 out of 10 consumers would welcome robo-advisory services and advices for certain financial products such as opening a bank account or purchase an insurance coverage.

Lastly, a joint committee of the European Supervisory Authorities (EBA, EIOPA and ESMA – ESAs) has released this April 20th a report on Risks and Vulnerabilities in the EU Financial System, addressing cybersecurity concerns arising in the financial world. In particular, the committee identified as major challenges the protracted period of low profitability of banks (including non-performing loans (“NPLs“)) and the difficulties faced by insurers to generate adequate returns to meet long-term liabilities. Also the committee reported that the Financial Market Infrastructures (FMIs) reliance on Blockchain and FinTech in general, have a potential to disrupt the system, which will significantly impact the business models of the financial sector.

We will no doubt keep you posted.

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Alessandro Ferrari @Alessan1Ferrari / Costanza Pollini