European Banking Authority highlights shift to regulated fintech services

The EBA said there had been two important recent developments in the sector: the move of activities such as payment initiation services and account information services from not being subject to any regulatory regime to being subject to the revised Payment Services Directive (PSD2); and the increase in ancillary services provided by fintech firms which are not subject to any regulatory regime.

The report on the regulatory framework for fintech firms (33 page / 619KB PDF) found that there were few national legislative developments that could potentially create an unlevel playing field within the EU.

Proportionality and flexibility principles are applied in the same way by domestic authorities, irrespective of whether a firm applying for authorisation presented a traditional or innovative business model or delivery mechanism, the EBA found.

It said it would continue observing activity within the fintech market, but said there was no need to make specific recommendations on regulation of fintech at the current time. The EBA noted that some of the issues relating to the scope and status of regulation were already being considered as part of other work carried out by the European Commission.

Crowdfunding and some activities related to crypto-assets could be considered as ancillary activities which were coming under developing regulatory regimes, said the EBA. However the EBA pointed out that the European parliament and council were currently considering a proposal for regulation of crowdfunding submitted by the European Commission last year, while the follow-up proposals in the EBA’s own report on crypto-assets published in January were in the process of being implemented.

Fintech expert Luke Scanlon of Pinsent Masons, the law firm behind Out-Law, said: “The report gives an insight into the areas of the fintech ecosystem which are currently on the horizon for EU-level intervention. Crypto-assets and crowdfunding have been subject to long-standing public consultation and discourse."

“But concerns about arbitrage arising from discretionary conditions to authorisation are newer to the agenda. This report therefore merits careful consideration by fintech businesses which might be affected by such interventions,” Scanlon said.

“It is essential that the EU level supervisory authorities think carefully about the statements they make in respect of the regulatory perimeter as technology is challenging many aspects of regulatory supervision. As more and more fintechs collaborate with other regulated and non-regulated entities, the clearer the guidance that is provided is, the easier it will be for regulated providers to both protect customers and provide new and innovative services,” Scanlon said.

The EBA said it would continue monitoring the fintech sector. In particular, it would keep an eye on whether the proportionality principles within PSD2 were being used to fast-track applicants through authorisation processes.

It said it would also carry out additional monitoring with a view to better assessing the specificities of national regimes which allow authorisation as a credit institution to firms with lower levels of capital, and how these applied to applicants from the fintech space. In the last five years, just six EU-based fintech firms have received authorisation under such regimes.

Although it said EU member states were generally applying regulatory principles on similar lines for the fintech sector, the report identified varying practices when it came to attaching conditions, limitations and restrictions to authorisation. The EBA may carry out further work in this area.