ESMA Group Opines on Regulation of Open Banking and Digital Platforms
The Securities and Markets Stakeholder Group (SMSGs) published its Technical Advice to the European Securities and Markets Authority (ESMA), with respect to the European Commission (EC) request to the European Supervisory Authorities for advice on digital finance and related issues. The Advice reflects the discussion of the working group within SMSG as well as the consolidated comments and observations of the SMSG plenary. The SMSG is of the view that the digitalization of financial services should follow the principle of "same activity, same risk, same regulation." SMSG points out that digitalization has, in many instances, favored the emergence of highly concentrated competitive outcomes; it encourages regulators and supervisors to introduce appropriate regulatory safeguards to prevent the excessive concentration of market power with respect to digital platforms, to maintain competitive markets and preserve financial stability.
The SMSG welcomes EC's recent legislative proposals for the regulation of the digital finance sphere, including the Digital Finance package of September 2020 and the Digital Markets Act (DMA) of December 2020. The SMSG agrees with EC's overall assessment that digital innovation, noting that the adoption of digital services has the potential to unlock significant benefits for financial services firms, businesses, and consumers in the European Union and could become an important enabling factor for the further integration and deepening of European capital markets. The insights gained from the aggregation and analysis of data using algorithms and, increasingly, artificial intelligence, have the potential to enhance existing products and services, and enable new, innovative offerings to the benefit of businesses and consumers. The SMSG notes, however, that the general principles of regulating the process of digitalization and the use of artificial intelligence in financial services must be observed. The SMSG also notes that the open banking blueprint established for payment services in second Payment Services Directive (PSD 2) does not readily lend itself as a template to be applied, with some modifications, to other areas of financial services. SMSG is not convinced that the ease with which PSD 2 facilitates the commercialization and commoditization of citizens’ personal data and its liberal interpretation of the concept of consent constitute best practices for the protection of citizen data. In this context, SMSG emphasized that data portability, which open banking relies on to reduce lock-in effects, is not a substitute for adequate data protection.
SMSG notes that the financial markets, and the retail savings and investments, are much more diverse and different from the payments market and require bespoke solutions. Nonetheless, SMSG expects that major digital platform providers will continue to build up their presence in the financial markets and welcomes the EC proposal for a Digital Markets Act (DMA), which aims to regulate certain critical aspects of their activities, which would include, in particular, the intermediation of financial products and services and the provision of payment services. The DMA would invest EC with new monitoring, investigative, and enforcement powers, including the power to impose one-off fines and periodic penalty payments to sanction anti-competitive behavior by operators of core platform services (also known as gatekeepers). SMSG supports the EC proposal to subject gatekeepers to additional scrutiny. SMSG welcomes the obligation for gatekeepers to refrain from combining personal data sourced from core platform services with personal data from any other services offered by the gatekeeper or with personal data from third-party services without the express consent of the user. The Group stresses that the granularity of the "silo" approach will be critical for its effectiveness; thus, legislators should ensure that "siloing" in respect of the intermediation of investment services is maintained at least at the same level of granularity as the regulated products and services themselves.
Related Link: SMSG Advice
Keywords: Europe, EU, Banking, Securities, Digital Finance, SMSG, Open Banking, Digital Platforms, Digital Markets Act, Regtech, EC, ESMA
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