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Holland FinTech

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.
General introduction

Amsterdam, November 2017

To whom it may concern,

Holland FinTech welcomes the EBA Fintech Discussion Paper and we support the initiatives taken by the European Banking Authority to foster and strengthen digital innovation and Fintech in a European context. Creating a deeper understanding of the role of Fintech in relation to the six topics mentioned could be of great benefit in mutual understanding of the role of Fintech and the changing financial services landscape in general.

Most importantly, financial services innovation and Fintech can no longer be considered separate from digital innovation in general and demands a more integrated approach across policy domains. In this paper, we aim to contribute to this ongoing discussion, drawn from the knowledge and network of Holland FinTech in several roundtables and consultations to involve a broad representation of our member base.

Holland FinTech is a platform that connects around 350 member companies across the globe to a deep Fintech knowledge base and our Fintech network that spans the globe, creating a marketplace for innovative financial solutions. Our member network includes diverse organisations and companies, big and small, financially regulated or otherwise, and all with a shared interest in improving the financial value chain. In this way, we aim to empower everyone to embrace the potential of Fintech solutions available worldwide and to enhance economic empowerment through financial inclusion and financial literacy around the globe.

Our definitions
It is important to understand that the term ‘Fintech’ may refer to several things, among which: a financial services technology provider, a finance-oriented start-up, an innovative financial service, or the future of financial services. We find Fintech most practical to describe the current (acceleration of) changes to the financial services value chain, driven by technology, alongside changing consumer behaviour and regulations. Using Fintech as a definition to describe a company remains unsatisfactory due to the heterogeneity between them and the services they provide, which sets aside the option of specific Fintech regulation. In the same trend, financial services companies are generally becoming harder to identify with a single term, and hence harder to regulate as a certain type of entity, rather than through function-driven regulation. In this paper, we use the term ‘Fintech solutions’ to describe a broad range of innovative financial services (including all of its digital components) offered by both start-ups and incumbent financial services companies, as well as non-financial (non-regulated) companies.

Accelerate innovation by further lowering entry barriers and shorter time-to-market
The role of the EBA and national supervisors should, first and foremost, be to create a supervisory level playing field within the EU, removing unnecessary barriers to market entry. Therefore, it is our view that enabling a level playing field does not constitute a ‘one-size-fits-all approach’ in supervision, but instead asks for proportionality and shorter times to market. Proportionality in supervision and harmonization is key in the successful stimulation and facilitation of new entrants to the financial services industry.

While financial stability and prudential supervision should remain the primary focus, supervision should be better tailored to the activities and nature of new entrants. The time and costs for obtaining a license or regulatory approval to launch a Fintech business model are not only linked to direct supervision costs. Market entrants, in particular, incur high costs for professional (legal) services in order to adequately understand – and comply with –requirements.

These costs are relatively high due to the current lack of a harmonised European regulatory framework applicable to most Fintech solutions, in addition to the generally broad scope of current European legislation. This also has a negative effect on time to market and creates additional entry (and growth) barriers. We should also have a better understanding of the life cycle of a new technology provider within the financial industry: initial requirements are often low due to regional sandboxing, while becoming exponentially higher when growing to a more mature player.

We applaud the regulatory sandboxes and innovation hubs that are being created on a national level, as is the case in The Netherlands. Regulatory sandboxes allow for constructive dialogue with local supervisors. It is, however, our understanding that regulators are struggling to qualify innovative (Fintech) business models within the limited discretionary powers of Member States to deviate from the current European legislation. More room for experimentation on a national level is recommended. Given home-host supervision, we are of the opinion that a European sandbox has less value, as the sandbox should be where the regulation and supervision are executed. In accordance with the principle of single authorisation, we do favour the possibility to grant passporting rights to Fintech solutions that operate under a local sandbox approval/supervision.

In that respect, it is important that the relevant ESA’s provide clear guidance on the minimum requirements that should apply to Fintech solutions that operate in a local sandbox in order to use such passporting rights between the Member States, thereby preventing forum shopping between the Member States. Furthermore, to promote the use of regulatory sandboxes, the relevant ESA’s should provide more flexibility and more room for experiments for local supervisors, and enhance knowledge and know-how sharing between local supervisors and the ESA’s, leading to swifter learning.


As Fintech is not a suitable definition for a type of company, we argue that a specific ‘one size fits all’ Fintech license would not work. Existing definitions for financial institutions, financial services, and financial products are likewise becoming less suitable. Increasingly, regulated organisations in Financial Services are looking for ways to engage in non-financial activities to better serve their customers, but are hindered by the current system of financial licenses.

As the EBA research also indicates, we see more non-licensed companies playing an increasingly important role in the financial services value chain. Regulation by “type of organisation” therefore becomes much harder, potentially sparking regulatory arbitrage within the financial value chain and introducing new risks. Furthermore, financial innovation is hampered by existing regulatory requirements that are insufficiently flexible in incorporating new technological solutions, e.g. new identification methods in KYC, and the qualification of the Fintech solutions in combination with the broad scope of European legislation, as briefly described above. From a cross-border perspective, the current KYC/AML regulation proves to be one of the biggest hurdles.

Changing business models benefit both companies and consumers
In general, we see that the current shift towards increased customer centricity and efficiency benefits end users in terms of costs, optionality and product quality. More innovative Fintech models will also increase financial inclusion as currently unserved or underserved group become eligible for existing and new financial products and services as result of lower cost to serve.

New Fintech solutions have triggered financial services providers to re-design product and services strategies and focus on more customer-centric models, as new entrants enter the market in various parts of the financial value chain. Most of the Fintech entrants are however solution providers and are supporting this transition by cooperation rather than competing directly with incumbents.

A smaller group of new entrants are in direct competition with incumbents. Obviously, they benefit from the use of new technologies from their inception compared to the legacy of incumbent parties, but they also face many challenges in market access as they are at a great disadvantage in terms of installed customer base, the general trust of the public and the inertia of consumers to switch service providers. Any research done on the changing market environment should therefore take into account all aspects of the business models to give a holistic view of the impact on the banking landscape as a whole.

More alignment needed on multiple levels within European context
As Fintech solutions generally operate (or in any event could operate) across both physical and sector borders, Fintech would greatly benefit from further (maximum) harmonisation, including a common language of definitions between member states. The current lack of alignment is an important hurdle to promoting innovation and stands in the way of decreasing the administrative burden, both for incumbents and new entrants, thus hampering access to financial solutions and economic growth.

We see three types of misalignment that should be addressed in a European context. First, there is a significant gap in the alignment of regulatory initiatives, most notably on the GDPR and Financial Services within the Digital Single Market.

Second, alignment between regulators on both local and European level should be further improved to cover the digital ecosystem as a single entity, in which financial services are embedded integrally. We have seen progress in alignment among Dutch financial supervisors, for instance, but see much potential in extending co-operation to relevant authorities outside the financial services sector, e.g. Privacy Authorities.

And last, a more holistic approach is needed between Directorates-General, e.g. DG FISMA, DG CONNECT, DG GROW, and other relevant DGs and Agencies. With the current sectoral approach, alignment issues will worsen over the coming years, as it neglects the interconnectivity of the digital ecosystem, of which financial services are one part. Requirements for financial services should be aligned with requirements for digital services in general, to create a level playing field also across industries.

More detailed comments on the consultation questions can be found below and have been submitted via the consultation tool. Going forward, Holland FinTech would like to contribute to the on-going discussion on digital and financial innovation.


Best Regards,

Don Ginsel
CEO Holland FinTech

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Question 1:
We believe that the current steps which are being undertaken are in the right direction but we would like to stress the implementation of a division of oversight over these sand-boxes between the member states and the EU regulatory bodies.

On the member state level, we believe member states should be given a certain level of autonomy to assess the needs for local sandboxing/innovation hubs. They can use their discretion to initiate and promote the development of fintech solutions.

On the EU level, we should guarantee that the benefits from sandboxing in member states offer relatively the same advantages, certainly when it comes to passporting rights for cross-border delivery of products. Sandboxing across the EU should come with EU wide passporting instead of country by country agreements.
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.
Question 2 & 3:
We support further research in prudential risks associated with the use of fintech solutions. This should however not only be seen from an incumbent perspective. Incumbents can benefit from fintech solutions in the same manner as Fintech companies, although this will require possible changes in their business model and operations.

We also believe the risk posed by fintech firms themselves to Credit Institutions are moderate, due to a twofold development in the market, which also relates to the opportunities that the new companies bring to credit institutions.

Firstly, many fintech companies are unable to challenge the market on their own, lacking a strong customers basis and trusted network, and therefore prefer to work together with incumbents as a supplier of new technology solutions.

Secondly, new cooperation between fintech companies and credit institutions can help manage risk through risk management solutions and lowering operational cost. When incumbents struggle with legacy costs, fintech companies can provide cheaper alternatives to overcome issues with old infrastructure.

We therefore believe the risks for incumbents to be relatively low, but would also like to remark that we believe that the credit market could benefit from a higher level of competition.
Question 3: What opportunities and threats arising from FinTech do you foresee for credit institutions?
For the answer, see question 2.
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.
Question 4 & 5:
We believe that more research on technological innovation in the payments domain can contribute to a better understanding in general, and more specifically on the technological developments driving DLT. Research on DLT should be seen in a broader context than VC alone, and should also take into account its broader applications, e.g. tokens, smart contracting etc.

We believe the risks to incumbents to be low. For payments institutions, we see no inherent risks arising from the entrance of fintech firms to the market.
Question 5: What opportunities and threats arising from FinTech do you foresee for payment institutions and electronic money institutions?
For the answer, see question 4.
Question 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.
Question 6 & 7:
New Fintech solutions have triggered financial services providers to re-design product and services strategies and focus on more customer-centric models, as new entrants enter the market in various parts of the financial value chain. Most of the Fintech entrants are however solution providers and are supporting this transition by cooperation rather than competing directly with incumbents.

A smaller group of new entrants are in direct competition with incumbents. Obviously, they benefit from the usage of new technologies from their inception compared to the legacy of incumbent parties, but they also face many challenges in market access as they are at a great disadvantage in terms of installed customer base, the general trust of the public and the inertia of consumers to switch service providers. Any research done on the changing market environment should, therefore, take into account all aspects of the business models to give a holistic view of the impact on the banking landscape as a whole.
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?
For the answer, see question 6.
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.
For the answer, see question 6.
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?
For the answer, see question 6.
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.
Question 10:
In general, stronger consumer protection and increased financial literacy are essential in going forward, including greater transparency and proper accountability in all parts of the financial value chain. We are however of the opinion that most Fintech solutions are part of a larger data value ecosystem. Any improvements to consumer protection should be considered in that context rather than only as part of financial services sector as through unbundling and disintermediation sectoral borders will continue to blur.

We believe there is good work being done on consumer protection and digital transparency within the EU and especially the efforts on digital protection by the EC under the guidance of the EU commissioner of Digital Economy and Society.
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.
Question 11, 12 & 13:
If financial services are to be provided across the EU, harmonisation of consumer protection laws is vital. The rights of consumers should be guaranteed, irrespective of the origins of the service provider.

Although we agree with the issues mentioned, issues of cross-border consumer protection and complaints handling go beyond Fintech and financial services only and should be addressed cross-sectoral. Good work is being done on consumer protection and digital transparency within the EU and especially the efforts on digital protection by the EC under the guidance of the EU commissioner of Digital Economy and Society. We, therefore, await initiatives taken by the European Commission.
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?
For the answer, see question 11.
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?
For the answer, see question 11.
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.
Question 14:
As of now, it is nearly impossible for consumers to make cross-border claims against providers of inadequate services. New regulations should guarantee stronger consumer protection when services are provided by foreign companies based on a European framework so to not limit cross-border activities. We confirm the current concerns from the EBA on this matter and encourage further research

We feel that consumer protection should be a harmonized initiative and be coordinated within one ESA as the issues raised are not only limited to the financial sector and are cross-sectoral by nature.
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.
Question 15 & 16:
We strongly support a review on national obstacles for the digital economy. Requirements regarding information disclosure should be technology neutral. Many obstacles can be found in the national KYC regimes.

Standardized information disclosure would benefit cross-border activities. While we support more clarification in this respect, there is a risk of increased administrative burden.

Information requirements for VC can only be set if there is a clear legal framework. Currently, several supervisors are still investigating the status of VC’s and any requirements would, therefore, be premature.
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?
For the answer, see question 15.
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.
Question 17 & 18:
Too few consumers understand the true value of their data in relation to new innovative business models. More emphasis could be placed on increasing financial, digital, and privacy awareness among EU citizens through education that enables individuals to better understand financial and other digital services they use, as well as the value of their data. This poses a challenge to primary and secondary education, including communication around digital products and their business models, which has not yet been addressed. The EU and its member states should primarily focus policies and communication on empowering citizens to feel at home within the digital EU. In addition to this, users should have more control of their data, for instance by ensuring a minimal flow of data by default. Further standardisation on default privacy settings (privacy-by-design) for consumers vis-à-vis data processors could also be considered.

Part of our mission at Holland FinTech is the strengthening of Financial and digital literacy among citizens and consumers, and we applaud any effort by an EU agency on this matter. We, however, believe it is not in the field of expertise of the EBA to play a proactive and leading role on this matter.
Question 18: Would you see the merit in having specific financial literacy programmes targeting consumers to enhance trust in digital services?
For the answer, see question 17.
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.
Question 19:
We have little evidence of financial exclusion due to new developments in artificial intelligence and data-driven algorithms, although we do see potential exclusion issues using such technologies for consumers.

In addition to current legislation, regulators should include the promotion of transparency. When firms operating on or providing AI solutions are required to show how these algorithms come to certain outcomes, exclusion can be assessed and errors can be resolved. Furthermore, the requirement to give insights to regulators for both data input and decision-making process will work as a disciplinary force.
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.
Question 20:
We agree with the proposed way forward.
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?
Question 21, 22 & 23:
We agree with the proposed way forward from the EBA: fintech , eg. regtech solutions show great potential in contributing to the policy aim of AML/CFT legislation. To fully benefit from this potential further harmonization between regulatory bodies is crucial.
Also, a European approach would be more suitable, as the weakest link will define the overall level of security in a fragmented financial service industry. We believe solutions provided by regtech companies could greatly increase the level of security across the entire value chain. RegTech can be used in Regulatory & Risk Reporting, Legislation & compliance gap analysis, Activity Monitoring and Fraud prevention. For example, in KYC we see hurdles in the traditional view of identification such as in-person verification, where new technologies can even offer better (more secure) identification methods. DLTs, either through decentralized or centralized ecosystems can also add to regtech, risk management and compliance as well as facilitate new, innovative applications for the FSI and its stakeholders. For AML/CFT compliance on the national level, local regulators often follow the European AML guidance, which sometimes leads to issues for smaller firms, which struggle with vague or complex terminology.
Q22: Rather than only looking at fintech firms, EBA should look at the entire value chain for possible weaknesses with respect to AML/CFT. Although we don’t observe high levels of criminal activity within the Dutch Ecosystem with regards to fintech firms, we do believe new solutions might create a host of opportunities for money laundering activities, especially those facilitating cross-border payments.
Question 22: What do you think are the biggest money laundering and terrorist financing risks associated with FinTech firms? Please explain why.
For the answer, see question 21.
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.
For the answer, see question 21.
Contact name
Don Ginsel