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Fintechs and the EU Financial Single Market
16 May 2017

With the rise of populism, the European Commission is becoming more selective on the areas it chooses to regulate. In Brussels, one can feel a shift in regulatory culture moving towards a legislation driven to provide tangible benefits to European citizens. Cross-border roaming charges constitute a typical example.  As from June 15, mobile users will be paying the same price for services when roaming across the EU as they do at home.

The EU’s action plan on consumer finance, launched in March, is another attempt by the European Commission to regulate in the interest of European consumers. It is a step in the right direction and is to be applauded. However, transferring tangible value to the European consumer via a European retail financial service policy is complex.

Transparency across the EU in the provision of financial services is one of the key pillars of this action plan.  This is commendable since consumers should be clearly informed about the charges and fees they face when choosing a financial service across borders, and they should be in a position to compare prices. In this regard, the European Commission is proposing to enhance the quality and reliability of financial services comparison websites through certification schemes. The action plan is also exploring ways of facilitating access to loans across European borders through fairer consumer protection rules when these create unjustified barriers to cross-border business. While positive, the flip side of the coin, from a consumer protection perspective, is that such initiatives may encourage over-indebtedness when consumers shop around for more than one loan in various Member States.

Acknowledging this, the European Commission has proposed the introduction of a common credit worthiness assessment standard which would allow European credit registers to undertake European cross-border creditworthiness assessments.

Considering the ease of replicability of financial technology (fintech) platforms across borders, one may ask the question: Can fintech unravel the complexity of setting up a European single market in consumer financial services?

Today, EU citizens can open an IBAN account online via a UK or Finnish fintech. A UK citizen or business may seek to obtain a loan via an online crowdfunding platform which sources funds from the public. Fintech can provide online investors with a wealth management portfolio tailored to their risk profile based on a one-minute online questionnaire. If compliance costs for on-boarding is hindering business development, there is a fintech firm that runs online identity verification and anti-money laundering (AML) checks using big data.

The fintech landscape is evolving rapidly across various business lines and this new phenomenon of distributing retail financial services via online platforms may provide the European Commission with an opportunity to fast track a single market in the area of consumer financial services. However, fintechs may not be the silver bullet they appear to be at face value. The widespread use of fintechs across the  European single market would require a cross-border regulatory regime and consumer protection rules that would ensure financial stability and safety for end users. In the light of this, the European Commission has set up a Task Force on Financial Technology across all relevant services working on financial regulation, technology, data, access to finance, entrepreneurship, consumer protection and competition.

To complement the activities of this task force the Commission has issued a consultation exercise to further develop the Commission’s approach towards technological innovation in financial services. The objective of the consultation is to create an enabling environment, where innovative fintech products and solutions take off at a brisk pace all over the EU, while ensuring financial stability, financial integrity and safety for consumers, firms and investors. While growing significantly, a back of the envelope calculation indicates that the volume of fintech cross-border transactions as a percentage of market share is still relatively small. To ensure that fintech solutions gain a wider reach at a faster pace there needs to be clear crossborder regulatory and consumer protection rules to ensure that there are no shocks to the financial system, and a strong collaborative environment needs to be created between the existing players in the market (i.e. banks, financial service providers and insurance companies) and fintech providers.

The cross-fertilisation of ideas in a level playing field environment between the existing players and the new kids on the block will ensure the creation of a new European consumer finance ecosystem. While fintech firms on their own may not be the answer to the EU’s consumer services action plan the fintech platforms they run definitely have what it takes to act as strong enablers.

Mark Scicluna Bartoli heads the EU & Institutional Affairs unit at Bank of Valletta as well as its Brussels office. 

Published on The Sunday Times of Malta - 14th May 2017

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Bank of Valletta p.l.c. is a public limited company regulated by the MFSA and is licensed to carry out the business of banking and investment services in terms of the Banking Act (Cap. 371 of the Laws of Malta) and the Investment Services Act (Cap.370. of the Laws of Malta).