EC has called for technical advice, from ESAs, on digital finance and related issues in the financial sector. EC is requested advice on how to address “same activity, same risk, same rules” issues, more fragmented value chains, the scope of the supervisory perimeters, the prudential risks for non-bank lending and the protection of client funds. With this technical advice as a key input, EC may propose new legislations, amend the existing EU legislations, or take other actions. Among other timelines, the call for advice specifies that ESAs should deliver a joint interim report and a final report on value chains, "platformization," and mixed activity groups by October 31, 2021 and January 31, 2022, respectively.
The digital finance strategy, which EC adopted in September 2020, sets out its intention to review the existing financial services legislative frameworks to protect consumers and safeguard financial stability, protect the integrity of the financial sector in EU, and ensure a level playing field. To prepare for these actions, EC invited ESAs to provide technical advice on the following issues:
- Regulation and supervision of more fragmented or non-integrated value chains—ESAs are requested to assess if and when more fragmented or non-integrated value chains lead to unidentified or unaddressed risks in terms of notably financial stability, market integrity, or consumer protection and what challenges they bring for supervisors. They should, if and when warranted, advise how to manage the overall risks of the value chain and how to ensure a holistic approach to regulation and supervision.
- Platforms and bundling of various financial services—ESAs are requested to assess the extent to which platforms that operate across multiple member states to market or provide various financial products and services are effectively regulated and supervised. They should advise whether there is a need to extend or modify the existing EU financial services regulation and whether there is a need to enhance supervisory practices. They should also assess if current supervisory capacities and skills are adequate for monitoring such online services and enforcing rules and provide such advice as appropriate.
- Risks of groups combining different activities—ESAs are requested to analyze new emerging risks in relation to mixed-activity groups, in particular large technology companies with a significant activity outside the financial sector marketing or providing financial services. ESAs should also assess whether existing EU legislation address these risks, or whether adjustments would be needed. ESAs are requested to advise, where warranted, on how to adjust the supervisory arrangements relative to mixed activity groups.
Additionally, EBA is requested to provide technical advice on the following items:
- Non-bank lending—EBA is requested to examine to what extent lending provided by financial intermediaries outside of the pan-European financial services regulatory perimeter, including as applicable by technology companies and digital platforms, exists in EU. EBA should advise on any potential need to adjust the EU regulatory perimeter. EBA should develop and propose policy options to address any identified issues, considering the necessity of establishing specific authorization, passporting, prudential requirements, conduct, and supervision arrangements at both the domestic and cross-border levels. EBA should deliver an interim report and a final report on the non-bank lending by December 31, 2021 and March 31, 2022, respectively.
- Protection of client funds and articulation to the Deposit Guarantee Scheme Directive (DGSD)—EBA should advise on the implications of the Deposit Guarantee Scheme (DGS) protection of the client funds held by financial firms, investment firms, or other financial technology companies. The advice should discuss the advantages and disadvantages of such protection as well as the conditions for maintaining a level playing field between non-banks and banks. EBA should also map how often credit institutions are used to fulfill the safeguarding requirements and whether placements cause potential concentration risk. Based on the analysis, EBA should, if appropriate, propose concrete amendments to the DGSD framework. EBA, in consultation with ESMA, should deliver an interim report and a final report on the protection of client funds by July 31, 2021 and October 31, 2021, respectively.
Keywords: Europe, EU, Banking, Insurance, Securities, Digital Finance Strategy, Fintech, Deposit Guarantee Scheme, DGSD, Bigtech, Regtech, EC, ESAs
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