Primary tabs

European Fintech Alliance (EFA)

The European Fintech Alliance (EFA) believes that the following eight main points must be included in the way forward proposed in section 4.1 of the discussion paper. We are convinced that these points need to be taken into account in order to overcome the hurdles outlined by the EBA and noticeable by market participants:

(1) While taking into consideration the different competences and objectives of the EBA initiative as well as the ongoing activities of the EU Commission in FinTech matters, EFA strongly encourages both authority levels to sustainably align their work in order to avoid discrepancies and inconsistencies..

(2) All questions at hand should refer to financial technology products instead of firms, i.e. a product approach should always be aimed at, as incumbents are expected to provide financial technology products to the same extent sooner or later. A level playing field is needed for all providers, be it a young market player or an incumbent.

(3) EFA would like to emphasise the fact that the discussion paper at hand clearly focuses on FinTech firms doing B2C business. However, the market shows a lot of FinTech players focusing on B2B business (also, but not exclusively, because more and more B2C businesses realize the obstacles to monetize their products and hence start shifting to B2B cooperation models). A number of regulatory obstacles have an impact on the B2B cooperation sphere, esp. in cases where FinTechs are providing services to banks. For example, regulatory requirements on Outsourcing Controlling must be updated to current digital and pace needs.

(4) Instead of a status quo report (as proposed under No. 74 a.) on the fast evolving Fintech development and its national regulatory regimes, which would be out-dated the moment it is published, the EBA should install A PERMANENT CENTRAL INFORMATION POINT, RESPONSIBLE FOR CONSTANTLY GATHERING INNOVATIVE IDEAS AS WELL AS THE STATUS OF REGULATORY REQUIREMENTS for non-bank financing solutions. Such a clear and up to date overview would offer more legal certainty for innovative solution providers. At the same time, it would raise awareness among stakeholders of new technological developments and allow EU authorities to better respond to regulatory barriers. For example, open source-access to a constantly updated EBA’s FinTech mapping exercise, assures a better level of mutual understanding between market and regulator.

(5) Harmonised rules will also go a long way to address the lack of access to finance for FinTech companies: the larger the market of potential customers, the better the prospects for economies of scale and thus for attracting investments – access to capital is a crucial factor for EU FinTech companies to succeed in competing with finance hubs outside the EU, e.g. in the US and South- East Asia.

(6) Proportionate legislation is key to facilitating market entry and promoting a level playing field. Future initiatives for FinTech should therefore adopt a risk- based approach, where new products must comply with lower requirements for a specified period and a limited number of clients, while established products are obliged to meet full requirements. EFA would like to state that from our point of view there is no need for additional licensing categories. There are currently five licensing requirements for financial services within the Single Market, which EFA considers sufficient at this stage for the coverage of the FinTech market. Instead, FinTech solutions would BENEFIT FROM CLEAR RULES FOR THE “INSOURCING/ INTEGRATION” OF REGULATED PRODUCTS so as not to be obliged to initially hold their own license. Current national models such as “reverse outsourcing” raise unnecessary complexity for the internal organisation of FinTech companies as well as for responsible supervisory authorities of licensed companies providing “License as a Service” solutions. A clear framework is needed at EU level under which circumstances regulated products can be integrated as transparent features offered by regulated partners within the overall product of a new market player.

(7) Technology neutrality is another crucial element in this area that will help drive innovation. When setting out new requirements or developing standards, regulators should focus on outlining conditions to be met rather than on prescribing technical specifications.

(8) A sustainable EBA-internal approach to prepare the EBA and national CA’s for coping with new financial technologies is needed. EFA misses a self-critical analysis of the EBA’s and other Supervisory Authorities’ internal and initially market-independent approach on keeping track with digitalisation. From our point of view a more strategic and sustainable approach is needed in order to prepare the EBA and the CA’s for coping with new financial technologies, this could include but should not be limited to the workshops and trainings foreseen in no. 86, 91 of the discussion paper. Further EBA tasks, proposed by EFA are:

- Assessing how communication in a more general context could be optimised between authorities and the market (be it with regard to consultation processes in writing while speaking two “different languages” or regarding regulatory reporting).
- Staffing objectives, i.e. how to convince digital natives/technology experts/”Start up”-generation to work for supervisory bodies.
- Assessment of potential product testing facilities for supervisory staff; e.g. providing bank accounts for testing purposes and make EBA/CA staff actively test new FinTech products.
- SupTech should be fostered as a specific sub-category of RegTech by authorities within the EU. Even though, the EBA refers to Regulatory Technology (RegTech) as a beneficial market development on various occasions of its discussion paper, specific tasks on dealing with the opportunities provided by RegTech are missing. As part of the hearing held by the EBA on October 4th, 2017 – Mr. Haubrich elaborated that with regard to RegTech the EBA currently has to take a step by step approach, i.e. it acknowledges the importance of regulatory technologies for the market as well as the future supervisory work; however, the EBA chose not to include further assessment on these issues within the Discussion Paper on FinTech, but considers a potential separate RegTech Discussion Paper. EFA is seriously concerned that postponing a detailed assessment of a potential EBA strategy on RegTech is the wrong approach. RegTech might still be a “new trending buzzword”, however risks and opportunities linked to technological developments in this area should be given the same - if not even more – consideration by regulators compared to the FinTech market. This holds especially true while the market is still under development. EFA comes to this conclusion for the following reason: The financial market is desperately waiting for technological solutions, helping to minimise costs for regulatory compliance. Consequently, emerging new RegTech products are expected to be successful much faster than their FinTech counterparts. Consequently, EFA SUPPORTS THE DEDICATED FOSTERING OF SUPTECH (= Supervisory Tech): the benefits of RegTech solutions should not be limited to the financial services market, since they offer huge opportunities for supervisory authorities as well. By using innovative technology, prudential work could be optimised and regulators’ objectives sustainably achieved. Being first movers and users (!), instead of cautious observers will provide European authorities with valuable know-how regarding RegTech developments.
EFA members encourage platforms for regular exchanges between FinTechs and Incumbents as well as regulators and consumer organisations. However, one must consider that FinTech industry experts are mostly part of SMEs with resources too limited to dedicate their time exclusively to regulatory developments. Market driven initiatives to represent FinTech interests, such as the European Fintech Alliance itself, can minimise efforts of regulators to identify suitable market experts and help to reduce associated costs for all parties. We herby officially invite you to contact us, whenever you are seeking support in making contact to FinTech market experts. EFA is pleased to provide you with contacts to topic-specific industry specialists across the EU from our EFA network. We are also open to discuss any on-going engagement of EFA as part of a standing platform, to be introduced by the EBA.
Moreover, besides workshops and trainings for supervisors foreseen in No. 86 b., we refer to our input regarding a sustainable EBA-internal approach to prepare the EBA and national CA’s for coping with new financial technologies (compare answer under Question 1).
The huge potential of FinTech to stimulate growth and jobs across the economy is widely recognised. FinTech enables businesses to outsource the technological component of their finances, thereby freeing resources for investment in their core business. Especially small and cross-industry businesses stand to benefit from FinTech, since applications tend to offer single-purpose solutions which are efficient and effective at a lower scale. Consequently, EFA in general proposes to take a more cross-industry view on opportunities arising from FinTech.
In light of these opportunities, EU legislators are keen to provide the digital infrastructure and regulatory framework to promote innovation and growth in the sector. From EFA’s point of view and focused on credit institutions, the fostering of a strong European FinTech market will also have a strong positive impact on the overall financial services market in Europe, being a catalyst for the urgently needed technological development within incumbent credit institutions. Fostering cooperation instead of competition between FinTechs and incumbents means developing a strong European market, which counterbalances the fast evolving US Tech industry.
For the assessment of the further outlined questions by the EBA, EFA members encourage platforms for regular exchanges between FinTechs and Incumbents as well as regulators and consumer organisations (see above).
Besides workshops and trainings for supervisors foreseen in No. 91 b., we refer to our input regarding a sustainable EBA-internal approach to prepare the EBA and national CA’s for coping with new financial technologies (compare answer under Question 1).
As per our response to Question Nr. 3, EFA in general proposes to take a more cross-industry view on opportunities arising from FinTech. From our point of view and focused on payment/e-money institutions, the fostering of a strong European FinTech market will also have a strong positive impact on the overall financial services market in Europe, being a catalyst for the urgently needed technological development within incumbent payment institutions. Fostering cooperation instead of competition between FinTechs and incumbents means developing a strong European market which counterbalances the fast evolving US Tech industry.
Again, EFA thinks it is crucial to take or more product-based instead of a firm-based-perspective in these discussions. Consequently, EFA encourages the EBA to not only consider “interviews with a representative sample of credit institutions” (as proposed in No. 103 a.) but also use a platform approach, i.e. regular exchanges between FinTechs and Incumbents as well as regulators and consumer organisations to jointly clarify the impact of FinTech on the business models of incumbent institutions.
As PSD2 has shown in practice, regulators such as the EBA have a huge impact on creating an environment in which the climate of competition and distrust between the banking and FinTech industry is minimised. From EFA’s point of view, by actively fostering a fair market and cooperation, the EBA could play an important role in increasing the positive impact of financial technology on the incumbent banking market. And by doing so, economic disadvantages could be minimised from a “joint European market”-perspective.
Again, EFA thinks it is crucial to take or more product-based instead of a firm-based-perspective in these discussions. Consequently, EFA encourages the EBA to not only consider “interviews with a representative sample of payment and e-money institutions” (as proposed in No. 106 a.) but also use a platform approach, i.e. regular exchanges between FinTechs and Incumbents as well as regulators and consumer organisations to jointly clarify the impact of FinTech on the business models of incumbent institutions.
Generally speaking, regulators such as the EBA have a huge impact on creating an environment in which the climate of competition and distrust between the incumbent and FinTech industry is minimised. From EFA’s point of view, by actively fostering a fair market and cooperation, the EBA could play an important role in increasing the positive impact by financial technology on the incumbent market. And by doing so, economic disadvantages could be minimised from a “joint European market”-perspective.
Trust of consumers and customers is pivotal for providers of FinTech solutions, with data privacy being the main concern. Regulatory authorities should therefore define and oversee minimum levels of transparency for consumer protection, to ensure that end users know about and agree to the use of their data before, during and after using the respective services.

To that end, regulators need to develop capacities to assess the logic of algorithms and new technologies in general, encourage international exchange of experience and promote supervisory harmonization. Platforms for collaboration at EU level between all stakeholders involved will provide further support and help to ensure that transparency requirements and supervision remain proportionate while meeting legitimate concerns about data privacy.
EFA kindly proposes to the EBA to take a platform approach, i.e. regular exchanges between FinTechs and Incumbents as well as regulators and consumer organisations to jointly clarify all further assessment questions on hand.
FULL HARMONISATION OF ANTI-MONEY LAUNDERING/ CFT REQUIREMENTS using a risk-based approach for KYC and KYB requirements: currently, these requirements differ substantially between Member States and it is difficult to imagine a digital single market for financial retail products without an AML/CFT level playing field; full harmonisation is vital for the success of innovative KYC solutions, such as video identification or Data Portability for Identification; these solutions hold enormous potential for cost reductions and for maintaining consistent – and even higher! - security than any manual process can offer today. Accepting eIDAS compliant electronic signatures as a feasible tool to verify identities as part of the 5th AML Directive is a tangible example for an acceptable approach in that regard. However does not sustainably help if some member states still refrain from its implementation on national level (on-optional, i.e. full-hamormonization-rules are needed to a large extent).
As long as AML/CFT rules within Member States are based on EU Directives instead of EU Regulations, EU supervisory authorities play an important role in counterbalancing any non-level playing field approaches by member states, be it competition driven (low requirements) or risk driven (high requirements).
We refer to our answers regarding questions 12 and 23.
EFA kindly proposes to the EBA to take a platform approach, i.e. regular exchanges between FinTechs and Incumbents as well as regulators and consumer organisations to jointly clarify all further assessment questions on hand.
In the absence of a dedicated B2B chapter, EFA would like to take this opportunity to re-emphasise the fact that the discussion paper at hand clearly focusses on FinTechs doing B2C business only. However, the market shows a lot of FinTech players focusing on B2B business (also, but not exclusively, because more and more B2C businesses realize the obstacles to monetize their products and hence start shifting to B2B cooperation models). A lot of regulatory obstacles are found in this B2B cooperation sphere, esp. in cases where FinTechs are providing services to banks. For example, Outsourcing Controlling must be re-thought, if it is to meet today’s demands in flexibility and the fast uptake of financial technology opportunities. Providing ten subject questionnaires, each of which contains about 50 questions for a FinTech B2B vendor, does simply not help a bank to obtain a quick and clear-cut picture of the risks it is dealing with. Consequently, EFA asks the EBA for agreement on the conclusion that more efficiency and effectiveness will be achievable by managing and updating individual answers to a regulator’s standardised set of 50 central questions for outsourcing controlling/vendor risk management.
EFA is currently not aware of any obstacles in that regard.
EFA supports all tangible measures and initiatives that respond to the widespread call for digital education - specific financial literacy programmes could provide a first clear concept.
However, a more sustainable and long-term solution in enhancing trust in digital services is a more macro-prudential approach with regard to consumer rights. In a first step, regulation of financial products needs a clear mandate of de-complication, as complex regulation will only lead to more extensive user agreements but to less transparency for consumers. Providing simple but clear instructions - be it from regulation to the market or in a next step to the consumer should be the focus again. The term “Smart contracts” should not be exclusively used for Distributed Ledger Technologies, but also for innovative ideas to make contracts more comprehensible again, for example by regulated standards on front-end design and content in that context.
That is why also in this regard a platform approach, i.e. regular exchanges between FinTechs and Incumbents as well as regulators and consumer organisations to jointly exchange ideas on financial literacy concepts could help improve the suggested measures.
EFA supports all tangible measures and initiatives that respond to the widespread call for digital education - specific financial literacy programmes could provide a first clear concept. However, we refer to our further ideas provided under Question 17.
When considering REGULATORY OVERSIGHT OF THE USE OF ARTIFICIAL INTELLIGENCE, e.g. in the context of smart solutions for regulatory requirements, regulators should oblige IT auditors of regulated entities to ASSESS IF AI SOLUTIONS MEET THE GIVEN AND GENERAL PROVISIONS FOR THE REGULATORY REQUIREMENT. Any specific regulation for these solutions hampers the principle of technology neutrality as well as urgently needed RegTech innovation.
EFA is currently not aware of further issues in that regard.
With regard to the use of RegTech solutions we refer to our input on question No. 1.
In general, all measures should refer to financial technology products instead of firms, i.e. a product approach should always be aimed at, as incumbents are expected to provide financial technology products to the same extent sooner or later. A level playing field is needed for all providers, be it a young market player or an incumbent.
The question should refer to Financial Technology products instead of firms. Finding the right balance of appropriately regulating FinTech products, which are currently not yet under supervision as well as fostering an AML level playing field within the European Union will sustainably help to minimise any increased AML risks associated with FinTech. While developing further requirements with regard to information security for the prevention of cyber-crime, etc. – a product approach should always be aimed at, as incumbents are expected to provide financial technology products to the same extent sooner or later.
FULL HARMONISATION OF ANTI-MONEY LAUNDERING/ CFT REQUIREMENTS using a risk-based approach for KYC and KYB requirements: currently, these requirements differ substantially between Member States and it is difficult to imagine a digital single market for financial retail products without an AML/CFT level playing field; full harmonisation is vital for the success of innovative KYC solutions, such as video identification or Data Portability for Identification; these solutions hold enormous potential for cost reductions and for maintaining consistent – and even higher! - security than any manual process can offer today. Accepting eIDAS compliant electronic signatures as a feasible tool to verify identities as part of the 5th AML Directive is a tangible example for an acceptable approach in that regard. Further initiatives, such as a re-usage of KYC-package of customers by third parties/banks/FinTech, once done and frequently updated by AML-obliged parties, are needed. However, they do not offer a sustainable solution if some member states still refrain from their implementation at national level (non-optional, i.e. full-harmonisation-rules are needed to a large extent).

As long as AML/CFT rules within Member States are based on EU Directives instead of EU Regulations, EU supervisory authorities play an important role in counterbalancing any non-level playing field approaches by member states, be it competition driven (low requirements) or risk driven (high requirements).
Cornelia Schwertner
+49 151 5235 2831