ECB Responds to EC Proposal on New Digital Finance Strategy

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