Luke Scanlon: Fintech consultation requires right approach

Luke Scanlon warns against 'making generalisations that hinder progress' in the fintech field. Picture: John Devlin

Set up in 2011 in the wake of the 2008 financial crisis, the EBA produces regular risk assessment reports and technical standards for firms that need to comply with European Commission and European Parliament regulation.

A natural extension of the EBA’s area of interest is fintech, which it defines as “technologically enabled financial innovation that could result in new business models, applications, processes or products with an associated material effect on financial markets and institutions and the provision of financial services”.

The consultation follows an EU-wide mapping exercise earlier this year aimed at providing a clear understanding of current fintech activity in the region, which received responses from 22 member states, two European Economic Area states, and gathered information on almost 300 fintech firms.

The areas the EBA is asking for views on include authorisation and sandboxing regimes; prudential risks for credit institutions, payment institutions and electronic money institutions, and the impact of fintech on the business models of these institutions, on the resolution of financial firms on anti-money laundering and countering the financing of terrorism.

The consultation should lead to more consistency in how fintech businesses are treated across the EU and will highlight the significant variations in the ways in which financial regulators in Europe treat fintech businesses.

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Any procedure that looks at the issues that can impact on financial services (FS) firms and fintech businesses themselves, in terms of developing a level playing field for providing services, is to be welcomed. However, I have some reservations that this particular exercise may conflict with a lot of the hard work that has already taken place in relation to specific areas widely recognised as requiring more attention.

Problems may arise when the EBA’s recommendations are filtered back to regulators at EU member state level and other jurisdictions across the EEA. While well-intentioned, a glut of recommendations, guidance and discussion papers, all of varying regulatory force, can create more legal uncertainty and extra barriers to moving forward with technology. This flies in the face of the objectives of supervisory bodies generally, which is to ensure that technologies support the FS sector and enables businesses to move forward quickly with many of the innovations now available.

Don’t get me wrong, it is positive that the EBA is taking a step back and carrying out this extra scrutiny. However, I feel some of the questions being asked or the topics being explored are somewhat broad and FS and fintech businesses would have been better served if the consultation was more directly linked to specific work being undertaken by the EBA and other EU bodies.

Lots of fintech businesses are focused on collaborating with larger FS organisations and this kind of uncertainty is unhelpful as it adds to the complexity of being able to collaborate and co-operate, causing unnecessary delay in deploying the smart innovations that are shelf-ready to introduce in to the market.

My advice to those businesses contributing to the consultation, which closes on 6 November, is by all means assist with information-gathering but to caution the EBA against making generalisations that hinder progress. Overly prescriptive rules are unhelpful, but a principle-based approach to regulation that provides clarity and encourages consistency in how fintech businesses are treated in different places will lead to greater consumer trust in innovative financial services and products.

• Luke Scanlon is legal director and head of fintech propositions at legal firm Pinsent Masons

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