“Europe’s financial markets will be more integrated, safer and easier to access thanks to steps mapped out by the Commission in its FinTech action plan”. This is the declared aim of the Initiative on Financial Technology – aka the EU’s FinTech Action Plan – presented by the European Commission on March 8th 2018. The document is part of a package of initiatives aimed at completing the Capital Markets Union (CMU), also including an Action Plan on Sustainable Finance with regulatory measures, a report into the Barriers for Cross-Border Development of Crowdfunding, and a proposal for a Regulation on European Crowdfunding Services Providers (ECSP) for Business.
Commissioner Valdis Dombrovskis said:
“To compete globally, Europe’s innovative companies need access to capital, space to experiment and scale to grow. This is the premise for our FinTech Action Plan.
Below, we report an extract from page 10 of the Action Plan, which focuses on the public’s concerns regarding the upcoming changes, and how the Commission plans on addressing these issues:
Nevertheless, EU rules that pre-date the emergence of innovative technologies may in practice not always be technology-neutral towards these innovations. Respondents to the public consultation have, for example, pointed to requirements or preferences for paper-based disclosures, or the need for physical presence. The absence of clear and harmonised processes to identify consumers and businesses online, in full compliance with anti-money laundering and data protection rules, was also considered a challenge for FinTech solutions. In the same vein, respondents expressed concerns that software investment is less attractive under current prudential rules for banks where investments in software made by EU banks must be deducted from their regulatory capital, in contrast to the more favourable treatment enjoyed by banks in the United States.
The Commission has already given consideration to some of these issues. In the Consumer Financial Services Action Plan, the Commission announced its intention to facilitate the cross-border acceptance of e-identification and remote know-your-customer processes. The aim is to enable banks to identify consumers digitally in compliance with anti-money laundering and data protection requirements, making full use of the electronic identification and authentication tools provided under eIDAS. To facilitate the use of electronic identification and authentication, the Commission set up a dedicated expert group on electronic identification and remote know-your-customer processes. The uptake of disruptive technologies, such as distributed ledger technologies and artificial intelligence, may pose additional regulatory challenges. Requirements for paper-based disclosure should be addressed. Responses to the public consultation raise concerns that the use of such technologies may be prevented or constrained by the existing rules.
In relation to the aforementioned concern that software investment may be deducted from Regulatory Capital, KYC’s SaaS model may be the answer to financial institutions’ concerns. Its SaaS model generates a situation where the Financial Institutions are not INVESTING in anything; the cash outflow is an expense, which is a P+L item, and not a Balance Sheet one.