Response to discussion on Approach on financial technology (Fintech)
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ANSWER : issues appear to relevant.
We believe that focus must be put on applying a uniformed regulatory framework for financial services across the union. In this respect, from our experience EU directives prove to be counter-productive because transposition into 27 different national law makes it impossible for fintech to be really cross-border.
Objective should be
• Similar fintech business model should be regulated the same way in all jurisdictions. No competitive advantage should arise from being regulated in a less strict country versus another
• A common regulator would make sense in order to provide similar guidance that ensure that rights and duties are perceived equally by all players across the union
• Process for being regulated should be identical in all countries (same application form, same time for response, possibility to use English in all countries) in order to ensure equality of treatment.
• Sandbox concept should be extended with common rules.
As shown on the discussion paper the current situation leads too many fintechs to not be regulated or to have the wrong regulation in place. This clearly disserves innovation and prejudices consumer by:
• Distorting competition
• Putting consumers at risk by offering regulated services without the guarantees in place
• Cast doubts on the fintech industry
o using Fintech to exploit the massive amount of data banks are sitting on and that are totally unused ;
o using Fintech to develop new processes that current legacy prevents from building in-house;
o Get inspired from fintech to put client back at top of priorities.
Threats
o Change of business model, change in value chain.
o Data protection. Many fintech do not offer sufficient guarantee in that respect and forcing Credit Institution in disclosing data to non trust worthy player could damage confidence in credit institution.
o Reputation: too many fintech are not regulated properly. Credit Institution teaming with unregulated / wrong regulated fintech could damage bank reputation
Although fintech are numerous, their overall market share (asset managed, payments carried on) are still extremely low compared with volumes of incumbents who have time to embrace the change. However embracing change means a radical rethinking of internal processes and value chain and credit institution must be ready to go through this.
Once again those obligations should be strictly equal in all jurisdiction given the cross border nature of Fintech. Also better explanation of regulatory framework should be given across countries.
As an example in the recent years many European payment institutions market products such as (i) Fx hedging (normally falling under MIFID2) or (ii) current account which is normally reserved to credit institutions.
This generates confusion within consumers. Too Few consumer (and professional too) understand differences between authorized for payment, regulated for investment, and banks. Given that PSD2 adds new category of players, this will add to confusion if not clearly explained.
Explanatory documents should be diffused by a single European body in all countries and published on all financial services website. Content should be equal in all jurisdiction.
Emphasis should be put on sanction harmonization as well : too low sanctions in some countries may result attractive for new players. A unique and common registry of registered entity would also help.
Also better explanation should be given between what a permanent establishment versus a branch means. Answer to §10 above apply here as well.
• Complex consumer law from a country to another
• Some regulators take the approach that even a minimal physical presence in a country imply setting up a branch, meaning high costs, delays and even redundancy of functions.
• Reporting formats and reported content differ significantly from a country to another.
• Harmonization of reporting methods (unique entry point) and content is necessary.
• Single entity registry
• Single Sanction framework and registry
• Single Fit and Proper test for financial entity directors
Complaints reporting requirement are too different from a country to another :
• Different process
• Different sanctions
• Different answer time
100% harmonization is necessary to ensure quality of service across the union. A single entity at European level should handle this, give common guidance and handle sanctions.
Despite recognizing video identification for national, too many countries still require apostilled or certified copies of documents when onboarding a non-national client.
This could be totally digitalized since trade registries and notary registries data bases are connected in Europe. This is a total non-sense.
A document digitally extracted from a non-national official body should be deemed legally valid in all the union.
A Registry of UBOs would also reduce time and cost of onboarding
We believe better data treatment allows better segmentation, and finally increases reach of financial services to underserved clients. Some successful example of this are being seen today in several European countries.
Crime does not know borders and so AML/CFT should not neither.
Again harmonizing the guidance across union is fundamental. We cannot have countries where AML requirements are light and other where it is totally burdensome. This creates risk for the entire system and distorts competition.
A European AML/CFT body should be created and be in charge of tasks such as:
• Defining rules for each of the Fintech categories
• Publishing lists of AML/CFT compliant entities
• Publishing lists of sanctioned entities
• Clearly define compulsory control functions: too many Fintech start with no compliance or internal audit functions in place.
• Open a communication channel with Fintech so that new businesses can ask questions and clear doubts
• Handle Director fit and proper test at European level should also be the rule
When regulatory or external audit inspection take place, Fintech processes are often leaner and more efficient than incumbents. The capacity to deal with many data in very short time tends to make Fintech more prompt to detect fraudulent payments.
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.ANSWER : issues appear to relevant.
We believe that focus must be put on applying a uniformed regulatory framework for financial services across the union. In this respect, from our experience EU directives prove to be counter-productive because transposition into 27 different national law makes it impossible for fintech to be really cross-border.
Objective should be
• Similar fintech business model should be regulated the same way in all jurisdictions. No competitive advantage should arise from being regulated in a less strict country versus another
• A common regulator would make sense in order to provide similar guidance that ensure that rights and duties are perceived equally by all players across the union
• Process for being regulated should be identical in all countries (same application form, same time for response, possibility to use English in all countries) in order to ensure equality of treatment.
• Sandbox concept should be extended with common rules.
As shown on the discussion paper the current situation leads too many fintechs to not be regulated or to have the wrong regulation in place. This clearly disserves innovation and prejudices consumer by:
• Distorting competition
• Putting consumers at risk by offering regulated services without the guarantees in place
• Cast doubts on the fintech industry
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.
yesQuestion 3: What opportunities and threats arising from FinTech do you foresee for credit institutions?
Opportunitieso using Fintech to exploit the massive amount of data banks are sitting on and that are totally unused ;
o using Fintech to develop new processes that current legacy prevents from building in-house;
o Get inspired from fintech to put client back at top of priorities.
Threats
o Change of business model, change in value chain.
o Data protection. Many fintech do not offer sufficient guarantee in that respect and forcing Credit Institution in disclosing data to non trust worthy player could damage confidence in credit institution.
o Reputation: too many fintech are not regulated properly. Credit Institution teaming with unregulated / wrong regulated fintech could damage bank reputation
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.
yesQuestion 5: What opportunities and threats arising from FinTech do you foresee for payment institutions and electronic money institutions?
See 3 aboveQuestion 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.
yesQuestion 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?
We believe the overall impact of Fintech will lead to positive changes in financial institutions by bringing significant improvements on user experience and product generation. Margins in some traditional activities will shrink (in payment especially) but other sources of profit will arise (in data management especially). However, banks will still benefit from having a balance sheet and be able to take risk when this is out of reach for most of Fintechs. Banks embracing the change will benefit from innovation.Although fintech are numerous, their overall market share (asset managed, payments carried on) are still extremely low compared with volumes of incumbents who have time to embrace the change. However embracing change means a radical rethinking of internal processes and value chain and credit institution must be ready to go through this.
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.
yesQuestion 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?
For non-banking payment institutions damage may be more severe. Most of those compete on prices over low value added activities. If they are not able to embrace keep up with technology they could disappear.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.
yesOnce again those obligations should be strictly equal in all jurisdiction given the cross border nature of Fintech. Also better explanation of regulatory framework should be given across countries.
As an example in the recent years many European payment institutions market products such as (i) Fx hedging (normally falling under MIFID2) or (ii) current account which is normally reserved to credit institutions.
This generates confusion within consumers. Too Few consumer (and professional too) understand differences between authorized for payment, regulated for investment, and banks. Given that PSD2 adds new category of players, this will add to confusion if not clearly explained.
Explanatory documents should be diffused by a single European body in all countries and published on all financial services website. Content should be equal in all jurisdiction.
Emphasis should be put on sanction harmonization as well : too low sanctions in some countries may result attractive for new players. A unique and common registry of registered entity would also help.
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. European passport implies a full harmonization of consumer rights.Also better explanation should be given between what a permanent establishment versus a branch means. Answer to §10 above apply here as well.
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?
yes.• Complex consumer law from a country to another
• Some regulators take the approach that even a minimal physical presence in a country imply setting up a branch, meaning high costs, delays and even redundancy of functions.
• Reporting formats and reported content differ significantly from a country to another.
Question 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?
• Harmonization of application process• Harmonization of reporting methods (unique entry point) and content is necessary.
• Single entity registry
• Single Sanction framework and registry
• Single Fit and Proper test for financial entity directors
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.
yes.Complaints reporting requirement are too different from a country to another :
• Different process
• Different sanctions
• Different answer time
100% harmonization is necessary to ensure quality of service across the union. A single entity at European level should handle this, give common guidance and handle sanctions.
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.
yesQuestion 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?
Definitely the identification of non-national persons is a digitalization bottle neck for many fintechs.Despite recognizing video identification for national, too many countries still require apostilled or certified copies of documents when onboarding a non-national client.
This could be totally digitalized since trade registries and notary registries data bases are connected in Europe. This is a total non-sense.
A document digitally extracted from a non-national official body should be deemed legally valid in all the union.
A Registry of UBOs would also reduce time and cost of onboarding
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.
yesQuestion 18: Would you see the merit in having specific financial literacy programmes targeting consumers to enhance trust in digital services?
yesQuestion 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.
Where manipulation of data always raises concerns, we believe this is risk not new. Incumbent have been siting for years on a massive amount data that they do not or cannot exploit and do not always store properly.We believe better data treatment allows better segmentation, and finally increases reach of financial services to underserved clients. Some successful example of this are being seen today in several European countries.
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.
yesQuestion 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?
yesCrime does not know borders and so AML/CFT should not neither.
Again harmonizing the guidance across union is fundamental. We cannot have countries where AML requirements are light and other where it is totally burdensome. This creates risk for the entire system and distorts competition.
A European AML/CFT body should be created and be in charge of tasks such as:
• Defining rules for each of the Fintech categories
• Publishing lists of AML/CFT compliant entities
• Publishing lists of sanctioned entities
• Clearly define compulsory control functions: too many Fintech start with no compliance or internal audit functions in place.
• Open a communication channel with Fintech so that new businesses can ask questions and clear doubts
• Handle Director fit and proper test at European level should also be the rule
Question 22: What do you think are the biggest money laundering and terrorist financing risks associated with FinTech firms? Please explain why.
Money remittance is clearly the most sensitive area. Most of money laundering or terrorist financing technics use numerous transfers of small amounts of money. This is hard to detect without powerful filters of transactions. Those filters must be dynamics and change flagging criteria on a constant basis. If, few fintech, have them I place, it must be noted that few banks are pioneer in that field.Question 23: Are there any obstacles present in your national AML/CFT legislation which would prevent (a) FinTech firms from entering the market, and (b) FinTech solutions to be used by obliged entities in their customer due diligence process? Please explain.
Not really. Indeed most of the AML/CFT impediments are coming from banks who tend to use those arguments as a reason for not giving banking coverage to Fintechs.When regulatory or external audit inspection take place, Fintech processes are often leaner and more efficient than incumbents. The capacity to deal with many data in very short time tends to make Fintech more prompt to detect fraudulent payments.