EU Banking Authority weighs in on FinTech regulation

The European Banking Authority is looking into how the FinTech sector is regulated but has urged caution in bringing cryptocurrencies under the ‘full scope of regulation’.

Andrea Enria, head of the European Union’s banking watchdog , said it will look into FinTech firms “with a view to ensuring that similar services, entailing comparable risks, are regulated in a consistent way across the EU”

He said that there are a number of routes to follow to pursue a proportionate, technologically neutral approach. “One is through the review and monitoring of new and existing regulatory products to avoid inherent bias towards the status quo.”

Another is in the area of authorisations and the creation of sandboxes ‘to facilitate proportionate but ultimately consistent rules’ to support new technologies, and the adoption of innovative business models. Sandboxes are set up by some national regulators to allow FinTech startups and other innovators to conduct live experiments in a controlled environment, under a regulator’s supervision.

Another way is to take active steps to promote ongoing knowledge sharing and best practices to ensure supervisors understand new technologies according to Enria. Because of this, the EBA said it intends to create a knowledge hub and build technological neutrality into supervisory guidelines and best practices.

“We need to ensure that firms can enter and participate in the internal market for financial services on an equal footing and that a high standard of consumer protection is maintained,” Enria said in a speech at Copenhagen Business School.

In line with the Commission’s Action Plan, in 2018, the EBA said it will conduct further analysis of sandbox regimes with a view to completing an assessment of their characteristics and identifying best practices. If appropriate, it will also consider developing Guidelines, he added.

“The EBA will also look more generally at competent authorities’ approaches to licensing, in order to review the extent to which any discretions or special capacity under national licensing schemes are been used. The work will inform an EBA Report reviewing the approaches adopted and setting out best practices and procedures.”

If necessary, EBA will also recommend adaptations of EU financial services legislation ‘in order to ensure a proportionate and technologically neutral approach’.

Enria claims  that bringing FinTech under the same supervisory umbrella as banks just because they compete in some of the same sectors is not the right answer. But “heightened monitoring” was needed on the links between banks and FinTech firms.

He also claimed he was ‘yet to be convinced’ that cryptocurrencies should come under the full gamut of regulation, a move that would enter ‘uncharted territory’ and along time to develop. Instead, a more “nuanced” short-term strategy could focus on applying anti-money laundering and terrorist financing rules.

Copyright © 2018 RegTech Analyst

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