The European Commission (EC) is planning to address the fragmented fintech licensing procedures in the European Union. Two weeks ago, EC Executive Vice-President of Economy, Valdis Dombrovskis outlined plans for a digital finance strategy as well as legislation for blockchain and crypto asset projects, both of which are planned for this year.
“Today, they (fintechs) face many barriers that prevent them from exploring the full potential of the single market – for example, different licensing procedures,” said Dombrovskis in a speech. “This leads to fragmentation of their activities country by country, making it harder for them to grow and scale up across borders.”
The strategy and legislation follow an extensive consultation process which is now closed.
The digital finance strategy
Dombrovskis outlined three areas for the digital finance strategy. Firstly, the aim is to create a single market for digital financial services, including addressing the barriers described. Plus, digital identities will be considered.
Secondly, it wants to promote a data-driven financial sector. It wants to create an ‘open finance’ policy building on the ‘open banking’ concept. With open banking, consumers can choose to share their banking information, for example, allowing it to be used in a finance app that aggregates multiple bank accounts or a budgeting app. Open finance extends the same idea to other sectors such as insurance, investments, mortgages and the like.
Lastly, it wants to review EU rules to stimulate innovation. And crypto-assets and distributed ledger technology (DLT) will be the first test case.
Crypto assets and DLT
“Lack of legal certainty is often cited as the main barrier to developing a sound crypto-asset market in the EU,” said Dombrovskis. “We intend to change that – and here, I believe that Europe is in a position to lead the way on regulation. For this, we need a common approach: one that supports and stimulates innovation.”
The proposals include a pilot scheme, which sounds like a regulatory sandbox, with supervisory oversight.
For assets not covered by existing regulation, there will be new rules to address risks, with lighter rules for less risky projects.
And this is where the news doesn’t sound great for Libra. Dombrovskis distinguished between global stablecoins and those created by smaller firms. “Because of their potentially systemic role, our rules will be stronger,” he said.
This is consistent with previous statements where he said that the degree of regulation would be proportionate to the risks.