Response to discussion on Approach on financial technology (Fintech)
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We welcome the sandboxing approach, if all the players have the same rules and opportunities to take part of it to achieve the level playing field. Banks and other financial institutions are also interested in this kind of also experimenting. For example OP Financial Group has an extensive accelerator program (see www.op-lab.fi) and there is an increased need to test, how new business models interact with existing regulatory regime. There should be convergence especially in the supervisory practices in order to avoid forum shopping.
As the speed of technological development is ever increasing, it is the major challenge for regulators and supervisors to keep the pace. Due to this development EU-legislation might quickly get obsolete. This requires ability of regulators and supervisors to interpret old rules in the light of new development. This might imply a need to provide more often regulatory guidance.
Credit and payment institutions are in a good position when it comes to management of the risks involved in FinTech -activities due to existing risk management framework and strategies. To control the significant increase in overall operational risks, the new entrants should be required to manage the risk at the same level as credit and payment institutions. Especially readiness to fight against cybersecurity and digital fraud issues should be emphasize.
EBA’s recommendation on the use of cloud services by credit institutions and investment firms is warmly welcomed to achieve convergence of supervisory practices. It is worth to note that FinTechs that are out of authorization and registration regimes fall out of the scope of this recommendation.
European Authorities should facilitate the digital transformation of European banks in order to remain competitive vis-à-vis new entrants. The competitive pressure may come from Fintech start-up or from the side of global technology companies (such as Google, Apple, Facebook and Amazon, known as GAFAs as well). These companies have redefined customer experience that is based on convenient 24/7 services.
To remain competitive and provide enhanced customer experience, the credit institutions should be allowed to provide more tailored services based on “customer centric approach”. For example, our strategy is based on provision of holistic services. For example, car loans are evolved into “all-inclusive” mobility-as-a-service packaged that combine elements of loan, insurance and related third party services.
In our view the current supervisory and regulatory approach is too focused on individual financial products, such as mortgage loans. To facilitate provision of new breed of customer friendly services, the authorities should for instance recognize the benefits of cross-selling of products and services. Bundled services and combined offers are often prerequisite for new services that provide clear benefits for customer. It should be noted that beneficial bundling of financial products differs clearly from detrimental tying practices, that are is already forbidden in specific legislation (PAD, MCD, IDD and MiFID II).
Retail banking services are experiencing the greatest risk of disruption within the next years. New technology has made it possible for smaller competitors to enter the retail market with relatively low thresholds and costs (e.g. online consumer services like online lending, online trading, peer to peer lending and crowdfunding). New companies have gained market shares in areas in which the banks were previously the sole actors. It is utmost important, as EBA has observed, that the different regulatory treatment of Fintech firms offering similar financial services as traditional credit institutions definitely could benefit from further investigation. This issue could potentially lead to level playing field issues and forum shopping for the most amenable regulatory treatment.
Delay of RTS on strong customer authentication and common and secure communication is causing uncertainty and increasing costs of all parties involved.
EBA is proposing to hold interviews with representative sample of credit institutions to understand the impact on business models. OP Financial Group has an exceptional strategy for traditional financial service provider, since it provides in addition to financial service also mobility services and health care services. OP is also active in the field of FinTech solutions. Due to that OP is willing to take part to interviews held by EBA.
As we indicated under question 2, the market entry of global tech giants (GAFA) is a viable scenario. Therefore, the future EU-legislation and supervisory approach should facilitate development of customer centric services.
To achieve level playing field, EBA Guidelines and equivalent regulation should be extended also to non-regulated FinTechs.
For instance, the existing rules relating to pre-contractual information (MCD, PAD) do not fit to digital world due to standardized format which is developed in the form of paper. Only the minimum content of information should be regulated and it should be left to service provide to choose the proper format depending on the channel. Basic information should not be too burdensome to fit the digital world. The concept of ”durable medium” should be interpret in a way that it is possible to make contracts and obey information requirements via digital channels. Majority of customer are not in favor of paper copies or CD-roms.
In addition to this, the use of electronical identity instead of handwritten signature should the encouraged by different means to accelerate the cross-border baking. The possibility to have a common electronical identity within (like eIDAS in the public sector) should be investigated.
EBA has identified some key challenges that can cause money laundering and terrorist financing vulnerabilities in financial sector and in the FinTech and AML/CFT context. We find it important that authorities and all market players have a better understanding of the money laundering and terrorist financing risks associated with the use of innovative products, services and compliance solutions, whether by financial institutions, or by new FinTech firms entering the financial market.
Question 1: Are the issues identified by the EBA and the way forward proposed in section 4.1 relevant and complete? If not, please explain why.
Yes, issues identified by the EBA are all relevant. We support further analysis of national regulatory regimes. From exemple in Finland we have a domestic regime for lending-based crowdfunding that might be worth for further study.We welcome the sandboxing approach, if all the players have the same rules and opportunities to take part of it to achieve the level playing field. Banks and other financial institutions are also interested in this kind of also experimenting. For example OP Financial Group has an extensive accelerator program (see www.op-lab.fi) and there is an increased need to test, how new business models interact with existing regulatory regime. There should be convergence especially in the supervisory practices in order to avoid forum shopping.
As the speed of technological development is ever increasing, it is the major challenge for regulators and supervisors to keep the pace. Due to this development EU-legislation might quickly get obsolete. This requires ability of regulators and supervisors to interpret old rules in the light of new development. This might imply a need to provide more often regulatory guidance.
Question 2: Are the issues identified by the EBA and the way forward proposed in subsection 4.2.1 relevant and complete? If not, please explain why.
Yes, issues identified by the EBA are all relevant.Credit and payment institutions are in a good position when it comes to management of the risks involved in FinTech -activities due to existing risk management framework and strategies. To control the significant increase in overall operational risks, the new entrants should be required to manage the risk at the same level as credit and payment institutions. Especially readiness to fight against cybersecurity and digital fraud issues should be emphasize.
EBA’s recommendation on the use of cloud services by credit institutions and investment firms is warmly welcomed to achieve convergence of supervisory practices. It is worth to note that FinTechs that are out of authorization and registration regimes fall out of the scope of this recommendation.
European Authorities should facilitate the digital transformation of European banks in order to remain competitive vis-à-vis new entrants. The competitive pressure may come from Fintech start-up or from the side of global technology companies (such as Google, Apple, Facebook and Amazon, known as GAFAs as well). These companies have redefined customer experience that is based on convenient 24/7 services.
To remain competitive and provide enhanced customer experience, the credit institutions should be allowed to provide more tailored services based on “customer centric approach”. For example, our strategy is based on provision of holistic services. For example, car loans are evolved into “all-inclusive” mobility-as-a-service packaged that combine elements of loan, insurance and related third party services.
In our view the current supervisory and regulatory approach is too focused on individual financial products, such as mortgage loans. To facilitate provision of new breed of customer friendly services, the authorities should for instance recognize the benefits of cross-selling of products and services. Bundled services and combined offers are often prerequisite for new services that provide clear benefits for customer. It should be noted that beneficial bundling of financial products differs clearly from detrimental tying practices, that are is already forbidden in specific legislation (PAD, MCD, IDD and MiFID II).
Question 3: What opportunities and threats arising from FinTech do you foresee for credit institutions?
In terms of future opportunities, cost reduction due to efficient use of financial technology, can be seen as one important positive factor. Credit institutions can become more competitive if they use the new technology in the right manner. Cooperation with fintech start-ups can provide more business opportunities to banks as well. Margin pressure due to new FinTech players is obviously the biggest threat for credit institutions as well as customer mobility.Retail banking services are experiencing the greatest risk of disruption within the next years. New technology has made it possible for smaller competitors to enter the retail market with relatively low thresholds and costs (e.g. online consumer services like online lending, online trading, peer to peer lending and crowdfunding). New companies have gained market shares in areas in which the banks were previously the sole actors. It is utmost important, as EBA has observed, that the different regulatory treatment of Fintech firms offering similar financial services as traditional credit institutions definitely could benefit from further investigation. This issue could potentially lead to level playing field issues and forum shopping for the most amenable regulatory treatment.
Question 4: Are the issues identified by the EBA and the way forward proposed in subsection 4.2.2 relevant and complete? If not, please explain why.
Yes, issues identified by the EBA are all relevant.Delay of RTS on strong customer authentication and common and secure communication is causing uncertainty and increasing costs of all parties involved.
Question 5: What opportunities and threats arising from FinTech do you foresee for payment institutions and electronic money institutions?
N/AQuestion 6: Are the issues identified by the EBA and the way forward proposed in subsection 4.3.1 relevant and complete? If not, please explain why.
Yes, issues identified by the EBA are all relevant.EBA is proposing to hold interviews with representative sample of credit institutions to understand the impact on business models. OP Financial Group has an exceptional strategy for traditional financial service provider, since it provides in addition to financial service also mobility services and health care services. OP is also active in the field of FinTech solutions. Due to that OP is willing to take part to interviews held by EBA.
Question 7: What are your views on the impact that the use of technology-enabled financial innovation and/or the growth in the number of FinTech providers and the volume of their business may have on the business model of incumbent credit institutions?
As agree that evolution of financial technology requires re-thinking around current business models. We refer to answers in questions 2 and 3.As we indicated under question 2, the market entry of global tech giants (GAFA) is a viable scenario. Therefore, the future EU-legislation and supervisory approach should facilitate development of customer centric services.
Question 8: Are the issues identified by the EBA and the way forward proposed in subsection 4.3.2 relevant and complete? If not, please explain why.
Yes, issues identified by the EBA are all relevant.Question 9: What are your views on the impact that the use of technology-enabled financial innovation and/or the growth in the number of FinTech providers and the volume of their business may have on the business models of incumbent payment or electronic money institutions?
We refer to answers in questions 2 and 3. In addition to this incumbent firms are seeking collaboration with third parties and develop their APIS to provide financial services.Question 10: Are the issues identified by the EBA and the way forward proposed in subsection 4.4.1 relevant and complete? If not, please explain why.
High level of consumer and customer protection is important regardless the service provider. The core existence of financial services and institutions is based on public trust on services provided. Start-up nature of many Fintech -providers may pose challenges to regulators. It is our experience that many start-ups are doing great job in innovating new services and concepts, but related consumer protection issues may not be in the heart of their core competence. We find it important, that regardless the size, nature, scale or complexity, the financial services providers (including fintechs) comply with consumer protection standards.Question 11: Are the issues identified by the EBA and the way forward proposed in subsection 4.4.2 relevant and complete? If not, please explain why.
Yes, issues identified by the EBA are all relevant.To achieve level playing field, EBA Guidelines and equivalent regulation should be extended also to non-regulated FinTechs.
Question 12: As a FinTech firm, have you experienced any regulatory obstacles from a consumer protection perspective that might prevent you from providing or enabling the provision of financial services cross-border?
N/AQuestion 13: Do you consider that further action is required on the part of the EBA to ensure that EU financial services legislation within the EBA’s scope of action is implemented consistently across the EU?
Yes we do.Question 14: Are the issues identified by the EBA and the way forward proposed in subsection 4.4.3 relevant and complete? If not, please explain why.
Due to increased cross-border nature of Fintech activities, the efficient complaints -handling is important. We think that issues identified by the EBA are all relevant. The possibility to use existing Online Dispute Resolution mechanism should be encouraged.Question 15: Are the issues identified by the EBA and the way forward proposed in subsection 4.4.4 relevant and complete? If not, please explain why.
Especially issues 120 a) and b) identified by EBA are extremely important to accelerate digitalization.For instance, the existing rules relating to pre-contractual information (MCD, PAD) do not fit to digital world due to standardized format which is developed in the form of paper. Only the minimum content of information should be regulated and it should be left to service provide to choose the proper format depending on the channel. Basic information should not be too burdensome to fit the digital world. The concept of ”durable medium” should be interpret in a way that it is possible to make contracts and obey information requirements via digital channels. Majority of customer are not in favor of paper copies or CD-roms.
In addition to this, the use of electronical identity instead of handwritten signature should the encouraged by different means to accelerate the cross-border baking. The possibility to have a common electronical identity within (like eIDAS in the public sector) should be investigated.
Question 16: Are there any specific disclosure or transparency of information requirements in your national legislation that you consider to be an obstacle to digitalisation and/or that you believe may prevent FinTech firms from entering the market?
The promissory notes act in Finland is several decades old and do not recognize a digital promissory note. This causes problems in recovery proceedings, where an original promissory note should be presented according to law.Question 17: Are the issues identified by the EBA and the way forward proposed in subsection 4.4.5 relevant and complete? If not, please explain why.
We refer to answer 15. Promoting transparency and clarity of pre-contractual information is supported. Special attention should be paid on the current overload of information.Question 18: Would you see the merit in having specific financial literacy programmes targeting consumers to enhance trust in digital services?
Yes, by increasing consumers’ knowledge and financial literacy it is possible to enhance trust in digital services and make them more comfortable to use services that are provided online in the digital form. The emphasize should be put on particularly an older people who are not considered as “digital natives”.Question 19: Are the issues identified by the EBA and the way forward proposed in subsection 4.4.6 relevant and complete? If not, please explain why.
The use of Big Data in analytics is still in starting phase. The access to basic financial services and non-discriminatory pricing is already granted via Payment Account Directive. Thus, we do not consider that there is any need for special Guidelines / Recommendations on the use of big data analytics for the purpose of advertising financial services. The issue should be thoroughly examined further before any actions.Question 20: Are the issues identified by the EBA and the way forward proposed in section 4.5 relevant and complete? If not, please explain why.
Yes, issues identified by the EBA are all relevant.Question 21: Do you agree with the issues identified by the EBA and the way forward proposed in section 4.6? Are there any other issues you think the EBA should consider?
Yes, we agree.EBA has identified some key challenges that can cause money laundering and terrorist financing vulnerabilities in financial sector and in the FinTech and AML/CFT context. We find it important that authorities and all market players have a better understanding of the money laundering and terrorist financing risks associated with the use of innovative products, services and compliance solutions, whether by financial institutions, or by new FinTech firms entering the financial market.