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With the digital transformation of financial services, consumers and businesses will gain better access to products more suited to their needs. For example, they will be able to have access to payments, savings and credit products without having to visit a bank. At the same time, financial providers will be able to provide services more efficiently and with larger reach. Digital finance could also benefit governments, since it can reduce financial crime and money laundering and improve public policy, for example with tax collection. In addition, facilitating the growth and development of fintech companies can contribute to job creation and economic growth in Europe as countries recover from the pandemic.
The coronavirus pandemic has confirmed how much we depend on digital technologies. In the period of lockdown, when most financial transactions were carried out online, digital technology was transformed from a convenience into a necessity. After the pandemic began, finance mobile application usage in Europe increased by 72% in just one week, due to social distancing and lockdown restrictions. So, the pandemic has reinforced how important it is for the EU to act proactively and support and reform the financial sector so it can adapt to the digital transformation.
The Commission is currently working on shaping a new digital finance strategy for the EU and its proposal will be launched in Autumn 2020. The Commission has identified some priority areas that should be the focus for public policy in the next five years. One of the main priorities of the digital finance strategy is to create a single market for digital financial services, addressing barriers to ensure consumers and businesses can reap the benefits of cross-border digital financial solutions.
Another priority is to make sure that EU regulation will stimulate innovation while remaining technology-neutral. The Commission also wants to promote a data-driven financial sector that consumers and businesses could benefit from.
At the same time, these objectives will only be achieved if digital finance is safe for consumers and businesses to use, and supports the stability of the financial system. So, the strategy should aim to make the EU financial system more resilient to cyber-attacks, so that consumers and businesses have confidence in it. It should also ensure that as digitalisation changes the structure of the financial system, regulators and supervisors have the right tools to protect financial stability and market integrity.
In order to prepare the digital finance strategy for the EU, the Commission has in the past few months launched a number of consultations and organised various events at national level and in Brussels – as well as online (see related article on the Digital Finance Outreach). The aim was to gather views from consumers, companies and authorities so that the strategy reflects their needs.
It is clear that there are a number of challenges arising from the digital transformation of the financial sector. The Commission recognises that although people are ready to embrace digital transformation, at the same time they need a safe financial system that they can trust. During the national lockdowns in Europe, cyberattacks on financial institutions rose by 38% and accounted for more than 50% of all attacks observed during this period. With the number of people using financial mobile applications up, the risks of an attack also would seem to increase. Therefore, the Commission aims to ensure that the financial system has the operational capacity to detect, address and recover from incidents such as cyber-attacks. But people need to trust traditional financial institutions too, as well as the new fintechs. Therefore, strong regulation and supervision are key to preserving people’s trust and EU rules must be fully applied and enforced by the supervisory authorities.
Crypto-assets offer many possibilities and Europe should make use of these opportunities. But crypto-assets can also pose risks, and these need to be addressed too to ensure that products are safe and reliable. At a regulatory level, some crypto-assets fall under existing EU law, but many of them do not. The Commission wants to make sure that, for crypto-assets already covered by EU rules, those rules will be adjusted in order to remain fit for purpose. For crypto-assets that are not yet covered, the Commission believes it is essential to create a bespoke regime. Later this year, it plans to propose legislation that will support innovation while addressing the risks these technologies bring. These rules will also be proportionate to the level of risk of the projects, with less-risky ones falling under lighter rules.
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