A Truly Future-Oriented Legal Framework for Fintech in the EU

Abstract

This article reviews critically the recent EU legislation and proposals for the regulation of financial technology (‘fintech”) and makes recommendations for legal improvements in the proposed frameworks, which will help to accelerate fintech growth, a declared EU goal, in the years to come. The rise of fintech driven by non-bank entities (technology startups, finance, big tech and big retail companies) helps to transform financial services industry, but also threatens the market positions of traditional banks and through them potentially the stability of the financial system. The current EU proposals, as presented in the Commission’s Fintech Action Plan published in 2018 and follow-up measures, outlined a number of steps to support fintech, while ensuring the protection of market stability and consumers and the maintenance of level playing field in the financial services markets. The article argues that, while the Commission’s proposed policy mix contains certain positive measures for fintech, it remains, overall, conservative and favours the incumbents. It also argues that unless the Commission becomes bolder and adopts a more flexible legal framework for fintech (for which the article makes specific recommendations), the latter will not grow at the pace needed to help build a competitive ad-vantage for the EU financial sector. The Commission’s continuing support of the established market landscape dominated by financial conglomerates employing traditional business models risks undermining the ability of the European financial system to adapt to the changing competition landscape created by advancing financial technologies and to fully address stability concerns, which emerged as a result of the financial crisis.