Brussels, 27 February 2018
Ladies and Gentlemen,
Thank you for the invitation to the second annual Fintech and digitalisation conference. It is a pleasure to see that this topic attracts such a broad audience.
The application of new technology in the financial sector is currently moving at a frenetic pace. Both start-ups and established players are engaged in a space race that even Elon Musk would have trouble keeping up with.
Blockchain is only one example, where we are seeing daily headlines about cryptocurrencies, and a global boom in initial coin offerings. Equally significant – if not more - is the deployment of mobile technology, cloud services, and artificial intelligence.
The financial sector is the largest user of digital technologies, and stands to benefit enormously from these innovations. This is true both for consumers and providers. New data-driven business models can also help to deepen and broaden capital markets, which is important for the Capital Markets Union.
Europe has what it takes to develop a globally competitive Fintech sector. Our research and engineering is world-class, and there is no shortage of pioneering Fintech companies. On a recent ranking of the world's 100 most innovative Fintechs, as many as 33 were from the EU. This shows that Fintech is already a job creator in Europe, but this is only the beginning. To be competitive globally, these digital innovators must be able to benefit from the full scale of the EU single market.
At the same time, there are risks, as we have seen. The European Commission takes very seriously any threat to financial stability or investor protection. Our challenge is to strike the balance between embracing the opportunities of new technologies, while addressing risks to consumers and investors.
Since I spoke at this conference last year, we have taken some further steps.
Last September, we put forward a targeted review of the functioning of the European Supervisory Authorities. Among other things, we proposed to give them a strong coordinating role for Fintech and the development of digital expertise.
And at the beginning of January, the revised Payment Services Directive entered into application. It offers banks opportunities, alone or allied with Fintechs, to embrace the new digital landscape and better meet their customers' evolving needs, including across borders. And it is an illustration of our approach to Fintech: Supporting innovation and encouraging competition while ensuring safety, to give consumers more and better choice.
Last year, we asked for your views on how to best prepare the ground for a dynamic EU Fintech sector. Building on your responses, we will present next week our Fintech Action Plan. It will set out a number of concrete steps for a more innovative and competitive EU financial sector.
It has three main goals, which I would like to cover today:
first, to support innovative business models to scale up across the single market,
second, to encourage the uptake of new technologies in the financial sector; and
third, to increase cybersecurity and the integrity of the financial system.
Let me begin with supporting innovative business models. Digital financial services rely on volume, economies of scale, and network effects. So for Europe to succeed and lead in Fintech, we need to make sure that our companies are able to grow and scale up in the EU.
Crowdfunding is a very good example. By filling an important gap in the funding escalator, this type of financing can be crucial for innovative start-ups to get off the ground. In the EU27, the sector has grown by more than 100% in each of the last three years. But due to a patchwork of national regulations, crowdfunding in Europe is usually contained within national borders. This hinders platforms from reaching scale. To solve this, we will propose an EU label for this sector, to allow platforms to operate across the EU based on a single authorisation.
Supervisors also play an important role in enabling innovation among financial companies. For example, meeting regulatory requirements and supervisory expectations can be difficult for new or innovative businesses.
Some 13 EU countries have already established innovation hubs or regulatory sandboxes. They have proven very effective both for companies and supervisors. But all countries would benefit from a safe space for start-ups to innovate.
To truly roll out innovation across the EU single market, we also need a more consistent approach. That is why we will invite the European Supervisory Authorities to identify best practices for innovation hubs and sandboxes by the end of this year. Based on their work, we will present a blueprint with recommendations for regulatory sandboxes.
The second goal of the action plan is to facilitate the adoption of new technologies. Today, fragmented or uninformed approaches to supervision of new technology and its applications can hinder their uptake. That is why well informed and skilled supervision of Fintech activities is a core theme of our Action Plan.
This year, the Commission will establish an EU FinTech Lab, for supervisors to engage with technology solution providers. The aim is to raise the level of knowledge and understanding about new technologies. We are also looking specifically at how to stimulate the adoption of certain technologies with wide-ranging economic implications:
One example is cloud computing, which is key to unlocking the efficiency gains from big data analysis. Today, two problems are hindering EU financial companies from taking advantage of cloud services.
First, there are important obstacles to the cross-border movement of data which we need to remove.
Second, there are inconsistent interpretations of rules on the outsourcing of activities to the cloud.
The Commission wants to remove these obstacles. The upcoming General Data Protection Regulation establishes the free movement of personal data across the EU, and will address some of these issues. Besides, last year, we came forward with additional proposals to remove data localisation restrictions, where work was led by my colleagues Vice-President Ansip and Commissioner Gabriel. And as part of our Fintech Action Plan, we will invite the European Supervisory Authorities to explore the issuing of guidelines to facilitate the use of cloud services.
We are also looking at blockchain and other applications of distributed ledger technologies for the financial sector. These technologies have a lot of potential benefits for consumers and providers. To make these technologies a success for all sectors of the economy, the European Commission created last month an EU Blockchain Observatory and Forum. It will help monitor developments and inform our policy-making.
But there are also important risks linked to applications of blockchain that confront us already today. For example, cryptocurrency valuations show all the signs of an asset bubble, and investors could potentially suffer substantial losses. Recent incidents of hacking have also exposed safety weaknesses. Last December I asked the three European Supervisory Authorities to renew their warnings to the public, and they did so two weeks ago.
To determine financial policy, we need a clear and current understanding of this technology and recent developments. That is why I invited EU and Member State authorities, businesses, and academics to a roundtable that took place yesterday. We had fruitful discussions on the implications of virtual currencies for financial markets, and the protection of investors and consumers, among other topics.
Our conclusions were based around the need for Europe to embrace opportunities and be prepared to tackle risks. Take Initial Coin Offerings, or ICOs, which are emerging as a new form of capital formation. Already today, ICOs allow a start-up to find capital in a matter of days, on a global scale. But they also present many challenges, and may not be covered by current regulatory safeguards. We will need to keep a close eye on how ICOs and other activities evolve.
Whatever we do, we should remember that Europe represents only a small share of global blockchain developments, and cryptocurrency trading in particular. When it comes to blockchain, borders are almost irrelevant, so we need to work together with our international partners, including in the G20.
This brings me to the third and last part of our Action Plan, on ensuring the cyber resilience of the financial sector. The financial sector is better prepared than other sectors, but it is also the most frequent target, with 65% more attacks than any other sector in 2016. As dependence on digital technology grows, it becomes more and more important that financial institutions can withstand attacks.
There are good national initiatives in this area. Rigorous testing to identify weaknesses is performed by experts who attempt to break into banks' systems like a hacker would. At the same time, we want to avoid a proliferation of testing obligations for companies that operate in different countries. So the Commission supports efforts by the European Central Bank and supervisors to develop an EU-wide testing framework.
This year, we will organise a public-private workshop to find and break down barriers that limit information-sharing among market participants on cyber threats.
Ladies and gentlemen,
Fintech has the potential to transform our financial sector for the better, both for consumers and for providers. We have already come out with proposals to help us seize this potential, and in next week's Action Plan, we will propose over 20 new measures.
The goal is the same as before: we want to see a competitive European financial sector that is able to drive innovation globally, alongside the US and Asia.