EBA Examines Implications of Increasing Use of Digital Platforms in EU
The European Banking Authority (EBA) published a report on the use of digital platforms in the banking and payments sector in European Union. In light of the rapid growth in the use of digital platforms in the banking and payments sector, EBA, in its report, identifies steps to enhance the monitoring of market developments, though EBA did not identify the need for any specific legislative changes at this stage. EBA plans to help competent authorities deepen their understanding of platform-based business models in 2022 through an information gathering exercise and has proposed certain actions post this information gathering exercise. These proposals will be further considered in the context of the EBA work (and the wider work of European Supervisory Authorities or ESAs) in relation to the joint ESA response to the European Commission’s Call for Advice on digital finance, which will be published in the first quarter of 2022.
The EBA report offers an overview of the digital platform landscape in European Union and examines the opportunities and challenges stemming from platformization, before moving on to provide supervisory perspectives with respect to monitoring risk in the platform economy. The report highlights that EBA has observed a rapid growth in the use of digital platforms, which present a range of opportunities for customers and financial institutions in EU. The increasing reliance of financial institutions on digital platforms for the marketing and distribution of financial services is creating new forms of financial, operational, and reputational interdependencies in the banking and payments sectors. Thus, in the report, EBA identifies a series of actions to improve supervisors’ understanding of emerging business models and visibility over new forms of interconnection in the financial system. EBA also sets out steps to better monitor market developments and implement changes, where needed. As a priority, in 2022, EBA will help competent authorities to deepen their understanding of platform-based business models and the opportunities and risks arising from these models by supporting competent authorities in:
- developing common questionnaires for regulated financial institutions on digital platform and enabler use, with the aim to facilitate tailored and proportionate information-gathering for a fast-evolving market.
- sharing information about financial institutions’ reliance on digital platforms and enablers to facilitate coordinated European Union-wide monitoring.
Building on this information gathering exercise, EBA proposes to
- develop a framework to facilitate the aggregation of information about financial institutions’ dependencies on digital platforms and enablers to identify cumulative dependencies in the context of the marketing and distribution of financial products and services.
- establish indicators that could help in assessing potential concentration, contagion, and potentially future systemic risks and could be taken into account in the context of supervision.
- continue its efforts to foster the sharing of supervisory knowledge and experience about digital platforms and enablers on a sectoral and multi-disciplinary basis, to enhance effective dialogue between authorities responsible for financial sector supervision, consumer protection, data protection, and competition, including via actions under the coordination of the Fintech Knowledge Hub of EBA.
EBA also highlights its previous recommendations for the European Commission to update its interpretative communications relating to when a digital activity should be considered as a cross-border provision of services. EBA reminds financial institutions of their obligations to ensure effective governance and operational risk management when leveraging digital platforms and enablers. Financial institutions are also reminded of the need to ensure high standards of consumer protection. Further observations and a set of recommendations related to the digital transformation of the EU financial sector will be set out in the joint ESAs response to the European Commission Call for Advice on digital finance.
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Keywords: Europe, EU, Banking, Digital Platforms, Payments and Market Infrastructure, AML/CFT, Call for Advice, Fintech, Platformization, Systemic Risk, Regtech, Lending, ESAs, EC, EBA
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