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February 12, 2019

European Parliament published a briefing that outlines the current and upcoming fintech-related laws at the EU level. It follows on from a March 2017 EPRS briefing that focused, inter alia, on the evolution, scope, and economic prospects of fintech. The report covers regulatory activities toward the implementation of the fintech-related plans of the European regulatory authorities, including the areas of payments services, consumer and data protection, insurtech, virtual currencies, and supervision of regulatory sandboxes.

Twenty-one EU member states and three European Economic Area countries currently have innovation hubs, while only five member states (Denmark, Lithuania, the Netherlands, Poland, and the UK) have fully operational regulatory sandboxes. Based on a report from ESAs, EC is expected to present a report with best practices for regulatory sandboxes in the first quarter of 2019. EC is also monitoring the development of crypto-assets and initial coin offerings with the ESAs. Based on an assessment of risks, opportunities, and the suitability of the applicable regulatory framework, EC will assess whether regulatory action at the EU level is required. Regarding payment services, EC (along with market players) is aiming to develop, by mid-2019, standardized application programming interfaces that are compliant with the PSD II and the GDPR as a basis for a European open banking eco-system, covering payment and other accounts. 

The report also mentions that, following up on an EC report from June 2017, in December 2017, European legislators agreed to extend the scope of the Anti-money-laundering Directive to virtual currency exchanges and wallet providers. Member states must bring the laws, regulations, and administrative provisions necessary to comply with this directive into force by January 10, 2020. Overall, the report states that, in EU, attention is being paid to the contribution that fintech could make to increasing efficiency, strengthening financial integration, and enhancing the role of EU in financial services. The report emphasizes the pressing need for safe and effective common rules supporting innovation and protecting consumers. Indeed, in EU, areas remain where member states can choose to apply individualized or less strict rules at national level (for example, peer-to-peer lending and virtual currencies). This can result in a fragmented environment, which may prevent businesses from expanding across borders. It can also lead to an uneven playing field and arbitrage opportunities that incentivize companies to obtain permits in less restrictive jurisdictions in an effort to minimize red tape while operating internationally. 

The financial technology, or fintech, sector encompasses firms that use technology-based systems, either to provide financial services and products directly or to make the financial system more efficient. Fintech is a rapidly growing sector: in the first half of 2018, investment in fintech companies in Europe alone reached USD 26 billion. The fintech sector brings rewards including innovation and job creation, but also challenges, such as data and consumer protection issues, and the risk of exacerbating financial volatility or cybercrime. To tackle these multi-disciplinary challenges, policy- and lawmakers in EU have adopted and announced several initiatives, for instance, on intra-EU payment services, data protection, crowdfunding, and regulatory sandboxes. 


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Keywords: Europe, EU, Banking, Regtech, Fintech, Regulatory Sandbox, Insurtech, Virtual Currencies, European Parliament

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