ECB Responds to EC Proposal on New Digital Finance Strategy
ECB published a response to the EC consultation on the new digital finance strategy for EU. ECB broadly supports the priority areas identified by EC in the consultation document to foster the development of digital finance in EU. These priorities have increased in importance in the light of the recent COVID-19 crisis and involve ensuring financial services regulatory framework is fit for the digital age; enabling consumers and firms to reap the opportunities offered by the EU-wide Single Market for digital financial services; promoting a well-regulated data-driven financial sector; and enhancing the digital operational resilience framework for financial services.
Regarding the priority that relates to enhancing the digital operational resilience framework, ECB has provided a separate contribution in the context of the specific consultation launched by EC on this matter. With respect to the other priorities of EC, ECB considers the following:
- With regard to ensuring the fitment of regulatory framework, important areas for improvement would be to enhance clarity on the application of existing laws and regulations to innovative technologies and related business models and to diminish the fragmentation resulting from different legal and regulatory frameworks and industry standards across EU member states, with the aim to foster the Internal Market, the pan-European application of standards, and a level playing field. In this regard, targeted amendments to legislation, interpretative guidance, and a periodic review of existing rules would be useful to ensure that the EU framework remains effective and technology neutral. While ECB sees some benefits in bespoke regimes for nascent technologies, such as distributed ledger technology, these will have to be balanced against the risks of their leading to a complex and potentially inconsistent regulatory framework.
- With regard to facilitating the use of digital financial identities throughout EU, ECB fully endorses the mandatory use of unique identifiers, based on internationally recognized global standards, including legal entity identifiers (LEIs), unique transaction identifiers (UTIs), and unique product identifiers (UPIs).
- ECB supports the need for enhanced cooperation throughout EU on different schemes, such as regulatory sandboxes and innovation hubs, and acknowledges the benefits of fostering an open dialog between supervisors and supervised entities. This may encourage banks (and other financial entities) to launch innovative solutions, while being able to monitor the accompanying risks in a controlled environment.
- ECB considers that open finance can have implications for the supervised banks, at both entity and systemic levels, and also for the nature of the cooperation between these banks and new potential actors, such as third-party providers. In this respect, ECB is adapting its supervisory approach toward the regulated entities to the new landscape that the revised Payment Services Directive (PSD2) has enabled. While open finance and the use of alternative data (such as data from public sources) can enable the modernization of banks’ internal processes, it should be ensured that customer data sharing, also with third-party providers, meets clear legal requirements and fulfills security standards.
Related Link: ECB Response (PDF)
Keywords: Europe, EU, Banking, Digital Finance Strategy, Fintech Action Plan, Regtech, Regulatory Sandbox, Bigtech, Cloud Service Provides, Distributed Ledger Technology, Artificial Intelligence, ECB
Previous Article
SARB Issues Directive to Amend Capital Framework Under Basel IIIRelated Articles
EBA Proposes Guidelines for Establishing Intermediate Parent Entities
EBA issued a consultation paper on the guidelines on monitoring of the threshold and other procedural aspects of the establishment of intermediate EU parent undertakings, or IPUs, as laid down in the Capital Requirements Directive.
EC Adopts Financial Reporting Changes Arising from Benchmark Reforms
EC published Regulation 2021/25 that addresses amendments related to the financial reporting consequences of replacement of the existing interest rate benchmarks with alternative reference rates.
BIS Bulletin Examines Key Elements of Policy Response to Cyber Risk
BIS published a bulletin, or a note, that examines the cyber threat landscape in the context of the pandemic and discusses policies to reduce risks to financial stability.
HMT Updates List of Post-Brexit Equivalence Decisions in UK
HM Treasury, also known as HMT, has updated the table containing the list of the equivalence decisions that came into effect in UK at the end of the transition period of its withdrawal from EU.
EBA Issues Erratum for Technical Package on Reporting Framework 3.0
EBA published an erratum for technical package on phase 1 of the reporting framework 3.0.
APRA Publishes FAQ on Measurement of Credit Risk Weighted Assets
APRA updated a frequently asked question (FAQ), for authorized deposit-taking institutions, on the measurement of credit risk weighted assets.
EBA Publishes Risk Dashboard for Third Quarter of 2020
EBA published the quarterly risk dashboard, along with the results of the Risk Assessment Questionnaire survey among 60 banks and 15 market analysts.
ECB Analysis Shows Privacy as Biggest Concern in Use of Digital Euro
ECB concluded the public consultation on the introduction of a digital euro in EU.
ECB Analysis Shows Privacy as Biggest Concern in Use of Digital Euro
ECB concluded the public consultation on the introduction of a digital euro in EU.
ECB Finalizes Guide on Supervisory Approach to Bank Consolidation
ECB published a guide that sets out the supervisory approach to consolidation in the banking sector.