EBA published a report that identifies potential impediments to the cross-border provision of banking and payment services in EU. The report focuses on issues in identification of a digital activity to be regarded as a cross-border provision of services. The report also identifies issues in areas of authorizations and licensing, consumer protection and conduct of business requirements, and anti-money laundering, building on the matters highlighted in the Consumer Financial Services Action Plan of EC and the FinTech Roadmap of EBA. The report highlights possible actions for the EC and EBA. EBA also published a list of frequently asked questions on this report.
The first important challenge is the identification of when a digital activity is to be regarded as a cross-border provision of services. The report highlights that the current EC interpretative communications do not reflect technological developments or accurately specify criteria for digital activity to be classified as cross-border. In particular, digital solutions provide new ways for institutions, including new entrant fintech firms, to reach consumers in multiple jurisdictions but competent authorities and consumers face difficulties in determining when such activities constitute cross-border business under the freedom to provide services. Although this issue is not limited to financial services, EBA highlights the need for EC to update its 1997 Communication to promote greater convergence of practices in determining when business is to be regarded as being provided cross-border under the freedom to provide services, taking particular account of technological developments. The second challenge stems from areas of EU law that are not fully harmonized or are not yet covered by EU law. In particular:
- Authorizations. From this perspective, competent authorities lack visibility on institutions’ cross-border activities. In this regard, changes in Level 1 text could strengthen the reporting requirements of cross-border activities by institutions to home and host authorities. Development of legislative proposals to introduce at Level 1 include formulating new reporting requirements for cross-border activities by institutions to home and host competent authorities and mandating EBA to issue guidelines to promote more consistent communication, by competent authorities, of requirements imposed in host jurisdictions. EBA stands ready to enhance supervisory convergence efforts by the use of the Q&A tool, where appropriate and by further encouraging home-host dialog on the provision of services cross-border, including initiatives such as holding EBA workshops and training.
- Conduct of business and consumer protection requirements. To facilitate and possibly enable the scaling up of services provision across the EU Single Market and to ensure an adequate and uniform level of consumer protection across the EU, further harmonization in the area of conduct of business and consumer protection requirements would be required. Development of legislative proposals to further harmonize at Level 1 include consumer-facing disclosure requirements; allocation of home or host responsibilities for the supervision of complaints handling in the context of cross-border services; and supervisory powers regarding the right of establishment and freedom to provide services cross-border.
- Money laundering and terrorist financing. The analysis conducted identifies regulatory divergence, arising from the minimum harmonization directive, as one of the main factors impacting the cross-border operations. EBA considers that potential changes to the Level 1 text could be necessary, including potential new mandates for EBA to produce technical standards or guidelines to promote further convergence in the application of supervisory measures.
EBA will continue to monitor the adoption of digital solutions in the context of the provision of banking and payments services and take further action as required should new issues emerge that may impede the capacity for financial institutions to provide services cross-border.
Keywords: Europe, EU, Banking, Cross-Border Activities, Fintech Roadmap, AML/CFT, Level 1, Reporting, Supervisory Convergence, EC, EBA
Scott is a Director in the Regulatory and Accounting Solutions team responsible for providing accounting expertise across solutions, products, and services offered by Moody’s Analytics in the US. He has over 15 years of experience leading auditing, consulting and accounting policy initiatives for financial institutions.
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