27 February 2018

Steven Maijoor speech at the Second Annual Fintech And Digital Innovation Conference

ESMA's Maijoor addressed three key areas of FinTech: the structural features of FinTech, monitoring FinTech by looking at economic function and challenges and opportunities for regulators.

The management of information – in simple terms, record-keeping – is at the heart of all financial activity. Reflecting this fact, FinTech relies on information technology. For example, a retail investor can manage his or her investment portfolio online, or by using a mobile app. Another example is the use of the cloud by financial sector firms to store and retrieve customer data.

The information technology that underpins FinTech is dramatically reshaping our economies and societies in many ways. We can interact and transact across the globe in ways that would have been hard to imagine just a generation ago. We can book tickets, order deliveries, hail taxis and manage our finances from our phones. Information technology has completely changed the face of the workplace, allowing teams of people to share information and collaborate on projects remotely. Indeed, an organisation like ESMA, which draws on the expertise of National Competent Authorities (NCAs) across the European Union, would not be able to function in the way it does without information technology. As with other manifestations of information technology, FinTech is leading to radical changes in how financial services are produced and consumed.

One pattern that we see as innovation takes place – including in the development of FinTech – is that one innovation leads to another. In some cases, successful technologies, products or services may emerge from failed innovations, just as they may build on previous successes. This process of iterative development is known as the ‘innovation spiral’.

Another concept that describes how financial innovation – including FinTech – often evolves is the notion of a ‘regulatory dialectic’.  Market participants take into account existing rules and regulations when they innovate. In response, authorities may seek to amend the regulatory framework, which may then prompt further innovation, and so on. In some cases, market participants innovate in order to frustrate the intended effect of the rules. Some shadow banking activities during the financial crisis are an example of a negative regulatory dialectic. Banks created off-balance vehicles that earned returns but avoided heavy capital charges.

Understanding how the process of innovation works – taking into account its structural features – enables regulators to take a coherent view of FinTech. Of course, each technological innovation is different. But as we monitor and assess FinTech developments, we find it helpful to keep in mind the radical changes brought by FinTech and other information technology. Put simply, we fully recognise the potential for FinTech to reshape the financial sector. We must keep in mind too the innovation spiral and the regulatory dialectic, so that in setting future policies we take into account the dynamic nature of FinTech.

The fundamental changes that technology is bringing to financial markets make FinTech a priority for financial market regulators. We need to monitor and to understand these changes so that we can respond to them in a balanced and effective way.

The European Commission recognises the importance of this challenge, which is why last year the Commission proposed to enhance the mandate and capacity of ESMA and the other two ESAs in this respect. The proposal wisely stresses a measured approach, envisaging that the ESAs harness the potential opportunities of FinTech while at the same time addressing possible risks that may arise from it.

Full speech

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