07 February 2022

Joint European Supervisory Authority response

to the European Commission’s February 2021 Call for Advice on digital finance and related issues: regulation and supervision of more fragmented or non-integrated value chains, platforms and bundling of various financial services, and risks of groups combining different activities

Executive summary

In February 2021, the European Commission (Commission) published its Call for Advice on digital
finance and related issues,1 among other things, requesting the European Supervisory Authorities
(ESAs) to carry out an analysis of (i) the fragmentation of the financial services value chain, (ii) the
growth of digital platforms, and (iii) mixed activity groups, and to set out such recommendations
as appropriate in order to ensure the EU’s financial services regulatory and supervisory framework
remains fit for purpose.
This report sets out the findings and advice of the ESAs in response to the Commission’s request.
It covers cross-sectoral and sector-specific market developments in the three key areas identified
in the Call for Advice, and the risks and opportunities posed by digitalisation in finance. It goes on
to present ten cross-sectoral and two insurance-specific recommendations for actions to ensure
the EU regulatory and supervisory framework remains fit for the digital age.
In summary, these recommendations relate to: (i) the need for a holistic approach to the
regulation and supervision of the financial services value chain; (ii) strengthening consumer
protection in a digital context, including through enhanced disclosures, complaints handling
mechanisms, mitigants to prevent mis-selling of tied/bundled products, and improved digital and
financial literacy; (iii) promoting convergence in the classification of cross-border services; (iv)
promoting further convergence in addressing AML/CFT risks in a digital context; (v) ensuring
effective regulation and supervision of mixed activity groups; and (vi) strengthening supervisory
resources and cooperation between financial and other relevant authorities, including on a cross-
border and multi-disciplinary basis; and (vii) the need for the active monitoring of the use of social
media in financial services.
With digitalisation, financial institutions increasingly rely on third-party providers for the provision
of services through outsourcing and other arrangements, which creates specific supervisory
challenges as National Competent Authorities (NCAs) may be limited in their assessment of the
risks and/or exercise of supervisory powers on the entirety of the value chains. Concentration
risks, and hence financial stability risks, may also arise in case of critical third-party providers. The
Digital Operational Resilience Act2 (DORA) is an important initiative that will address the
information and communication technology (ICT) risks in the financial services value chain.
However, DORA is not intended to address other risks that may arise from the reliance of financial
institutions on third-party providers. Recommendation 1 proposes that the Commission take a
holistic approach to the regulation and supervision of fragmented value chains, as further outlined
under Recommendations 2, 3, 7 and 8 (including in relation to digital platforms, and mixed activity
groups), and to conduct regular assessments to determine whether financial institutions exhibit
dependence on certain providers that may not be captured by DORA and represent a risk to
financial stability....

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