EUU, Alm.del - 2016-17 - Bilag 744: Notat og høringssvar vedr. Kommissionens høring om FinTech

Europaudvalget 2016-17
EUU Alm.del Bilag 744
Offentligt

Directorate-General for Financial Stability, Financial Services and Capital

Markets Union

European Commission

Rue de Spa 2

1000 Brussels

MINISTER FOR INDUSTRY,

BUSINESS AND FINANCIAL

AFFAIRS

Response to the

Commission’s public consultation

on FinTech

We welcome

the opportunity to respond to the Commission’s public con-

sultation

“FinTech:

A more competitive and innovative European finan-

cial sector”.

The current progress in the FinTech industry is showing the potential to

significantly change the landscape of finance as both well-established

financial institutions and new start-ups explore different ways to integrate

new technologies and digital solutions into financial services. As law-

makers, we must support the efforts of the FinTech industry to create

growth and jobs in Europe by providing the right framework conditions

regarding digitalization and innovation while continuing to ensure finan-

cial stability and consumer protection.

The FinTech market is still at an early stage and is undergoing rapid de-

velopments. It is therefore difficult to predict which services will succeed

and which will not, and generally, national and EU regulators should not

assume the role of picking the winners. It is of paramount importance that

the regulation is proportional and open to new market actors and innova-

tive business models. We should therefore ensure that the legislation is

simple and transparent, whereby new actors know how to navigate in the

financial landscape.

The Commissions work on the Better Regulation agenda is especially

relevant in this regard. Simplified regulation would benefit new market

actors with little or no experience in financial regulation and is further-

more expected to foster innovation in the financial sector.

It’s important to keep in mind, however, that better and simpler regulation

is not equivalent to lowering regulatory standards. Financial stability

should not be jeopardized in the process.

In light of the considerations above, Denmark supports the core principles

laid out in the

Commission’s

consultation paper, i.e. that EU policies

should be technology-neutral, proportional and integrity-enhancing.

MINISTRY OF INDUSTRY,

BUSINESS AND FINANCIAL

AFFAIRS

Slotsholmsgade 10-12

1015 Copenhagen K

Denmark

Tlf.

Fax.

CVR-nr.

EAN nr.

+45 33 92 33 50

+45 33 12 37 78

10092485

5798000026001

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Finally, we find that there is a need to coordinate FinTech efforts across

European institutions and to share best practices among Member States.

In our view, the Commission should be a strong partner in this regard.

For comments on the specific themes set out in the Commission public

consultation, please see the attached annex.

Yours sincerely,

Brian Mikkelsen

Minister for Industry, Business and Financial Affairs

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Annex

–

DK answer to questions

1. Fostering access to financial services for consumers and businesses

Digital solutions have already improved access to financial services for

consumers and businesses, e.g. through internet banking and new pay-

ment methods. These developments have generally brought significant

improvements to the efficiency of the sector. New FinTech solutions have

the potential to bring an even larger number of choice, cheaper and better

products and improved access to financial services for consumers. In or-

der to do so, however, it is important that the new business models are

supported by a well-functioning legal framework. A simple and transpar-

ent regulatory framework would be especially beneficial to FinTech start-

ups with little or no experience with financial regulation.

It is also important to recognise that many FinTechs provide services that

are currently not regulated, i.e. by providing technical services or cus-

tomer-facing interfaces on top of financial services provided by regulated

financial entities. Additional regulation might not be beneficial for the

development of such services.

This being said, a more precise and widely used definition of FinTech is

needed in order to have a common understanding of what it entails. In the

current debate the term is used to describe both the continued expansion

of new digital technologies among established financial business as well

as the introduction of new actors and business models. Establishing a

common understanding of the concept would help focus the discussion on

the best way to handle these developments in terms of the regulatory and

supervisory framework.

Crowdfunding

In general, we do not believe that it is necessary to adopt specific crowd-

funding regulation. However, the Commission could map existing nation-

al regimes with the aim to identify best practices.

Some Member States have developed national crowdfunding regimes

while others regulate crowdfunding through directives such as PSD or

MIFID. In Denmark, lending-based crowdfunding has typically been reg-

ulated through the Danish Act on Payment Services and Electronic Mon-

ey, with such providers having to obtain a payment institution license to

carry out their activities.

Regarding equity-based crowdfunding, a number of Member States have

implemented national regulatory regimes. Even though it has been high-

lighted as an effective method for financing startups and SMEs and is

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increasingly used in different Member States, equity-based crowdfunding

has not become widespread in Denmark.

Aligned national practices may have the potential to increase investor

protection and ensure easier access to financing for SMEs. In the absence

of aligned national practices, equity crowdfunding might lose its potential

as a user-friendly activity and feasible financing method for SMEs.

The diversified national practices are likely to have affected the develop-

ment of the crowdfunding market in a number of ways. Primarily, it has

made it difficult for crowdfunding to obtain a pan-European reach, as

there has not been an established common understanding on the passport-

ing regime for crowdfunding platforms. This makes it difficult for crowd-

funding platforms to grow out of their respective home markets.

Following this, in our view it would be beneficial to align the national

approaches to crowdfunding. This, however, does not entail a need for

new legislation, but rather through a better mutual understanding and

recognition of the existing regulatory framework. To this end, the Com-

mission or the ESAs could play a role in reaching common foothold.

Data analytics in insurance

Insurance companies increasingly adopt new technologies in order to im-

prove their businesses. European supervisors should follow the technolog-

ical advancements in the insurance sector closely in order to identify po-

tential issues which should be addressed. We have not yet identified spe-

cific areas where regulatory action is needed. If such areas are identified,

however, national supervisors need a forum to exchange information and

to discuss position actions, e.g. in EIOPA.

So far, we have not seen any examples that the use of sensor data analyt-

ics is providing any major changes in the market for insurance products.

However, we believe that some solutions might lead to distortions in the

insurance market. The obvious cases are in life-insurance, where DNA-

samples (currently banned in Danish legislation) or activity bracelets, that

monitor physical activity, are required to obtain insurance at a fair price.

This can lead to difficulties for some groups of people to obtain insurance

and hence give rise to a major challenge.

Consumers

New business models and technological developments have the potential

to empower consumers to make decisions that are more informed due to

more market transparency and through more tailored financial products.

However, financial consumer regulation should make it possible to use

technology to empower consumers. In general, the intended consumer

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protection behind information disclosure requirements and the actual ob-

served consumer behavior is often not aligned.

The rationale behind full disclosure of information is to provide adequate

information in order for consumers to understand their choice and be able

to make an informed decision. However, an important challenge is that

according to the relevant regulations the information must be disclosed all

at once, hindering the ability to create innovative solutions that could

make it easier for consumers to understand the conditions of the product

or service being sold to them

–

e.g. by presenting it in a more user-

friendly way.

We believe that insights from behavioral economics could lead to better

information requirements that help consumers to navigate in the disclosed

information, as presented in a non-paper by the Danish Minister for In-

dustry, Business and Financial Affairs at the Competitiveness Council

meeting on May 29 2017.

It should therefore be considered reviewing

the Directive on electronic commerce (2000/31/ED), the Directive on

consumer credit (2008/48/EC) and the Directive on credit agreements for

consumers relating to residential immovable property (2014/17/EU) for

REFIT purposes, with a particular focus on improving the information

disclosure requirements.

2. Bringing down operational costs and increasing efficiency for the

industry

Digital technologies have a huge potential for increasing efficiency in

financial services. However, businesses relying on digital solutions

should not solely be a matter of cost-savings but need to take into account

new risks arising from further digitalization. Therefore, an increased fo-

cus on technological skills will be needed both in the industry and for

supervisors. Furthermore, supervisors may need to focus more on super-

vision with the underlying technological aspects of financial institutions.

The rising digitalization of the financial sector creates new demands, also

on supervisors, to address risks related to cyber security.

Outsourcing and cloud computing

Outsourcing to e.g. cloud computing services can offer a cost effective

business case for financial institutions and is often used by FinTechs,

avoiding the need to invest huge amounts in IT infrastructure. However,

using cloud computing and other types of outsourcing introduces a

tradeoff between cost and control, insight and the ability to set forth con-

tractual requirements.

The non-paper is attached to this document.

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In general, we believe the current rules on safe means of outsourcing by

financial institutions are adequate. We have not found them to be a hin-

drance on the development of new (FinTech) solutions, including con-

cerning outsourcing to cloud services. The Danish legal requirements

concerning outsourcing are principle-based rules based on a risk-based

approach which we believe is the best way forward. Responsibility re-

mains firmly with the entity performing the regulated activity, and this

principle should not be changed.

In our view, there is no need for EU-level initiatives concerning outsourc-

ing at this point in time. There are already several initiatives in progress,

e.g. recommendations from the EBA concerning outsourcing. This work

should be taken into account when assessing any future EU-wide initia-

tives.

Distributed Ledger Technology (DLT)

Distributed Ledger Technology (DLT) is a promising new technology that

offers many interesting prospects for future use. However, it is far too

early to determine which solutions will succeed. As with many new tech-

nologies, there are obstacles that the market needs to solve. An obvious

challenge to the use of DLT solutions is data privacy. An example of this

is that the General Data Protection Regulation (GDPR) prescribes the

right to be forgotten, which could be difficult to implement in DLT sys-

tems, where all previous information is stored in the blockchain. In cases

like this, it is important to let the market work out a solution that con-

forms with the general legislative aims before sound principles in legisla-

tion are changed. Other problems relate to lack of standardisation, capaci-

ty challenges and anti-money laundering issues. We believe the market

should take the lead in resolving such issues.

As regards potential supervisory obstacles, we would caution against

prematurely trying to adapt the legislative framework before having a

clearer understanding of the issues. For now, DLT should be treated as

any other new technology, and when market solutions that shed light on

particular problems in the regulatory framework evolve, this can be con-

sidered on a more informed basis.

3. Making the Single Market more competitive by lowering barriers to

entry

Lowering barriers to entry in financial services could improve competi-

tion in the Single Market. However, new market participants should not

introduce new risks to financial stability.

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We believe that interaction between FinTechs and regulators is important

in order to facilitate innovation. An open dialogue between regulators and

FinTechs helps to achieve two goals. One is ensuring that FinTechs are

aware of, understand and comply with financial regulation. The other is

that the dialogue gives the regulator opportunity to better understand and

follow developments in the market, also creating a more well-informed

basis for introducing potential adjustments to the regulation.

Sandboxes

It should be encouraged that regulators engage in dialogue with the

FinTechs, such as in the so-called sandboxes. Many of the FinTechs are

small companies and start-ups that initially focus on their home markets,

but with the prospect of going international. The dialogue between

FinTech and regulator is therefore usually initiated at the national level

–

especially because it is the national supervisor who eventually has to give

an authorisation. The practical administration of the specific sandboxes

and similar initiatives should therefore to a large extent be left to Member

States.

However, we believe that work could be undertaken to better understand

what is, and what is not, possible in such sandboxes given the current

regulatory framework. The Commission could facilitate a harmonised

approach to sandboxes through soft measures. This could also include

facilitating the sharing of experiences from national sandboxes.

In Denmark, we have initially focussed on improved guidance and infor-

mation for FinTechs,

and will also look into the “softer” areas of EU leg-

islation, where e.g. “adequate measures” can be tailored to a start-up

with

a closer supervisory scrutiny acting as a compensating measure. We do

believe, however, that many requirements stemming from EU regulation

are absolute and thus cannot be waived even in a sandbox environment. It

is important to keep in mind that FinTech start-ups to a large extend deals

with “real” customers and that regulation is adopted for a reason.

Howev-

er, the experiences of regulators working more closely with start-ups

should be used in the efforts to develop simple and transparent regulatory

frameworks.

Therefore, it is important to emphasize that sandboxes should not be a

way for FinTechs to avoid regulation, or be used as a means to attract

FinTechs to local jurisdictions in a regulatory race to the bottom. Thus we

encourage a closer dialogue between regulators on the approach to

FinTech

–

e.g. on licensing issues, risks etc. Such work is already under-

way within the EBA.

Interoperability and standards

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Introducing standards and requirements of interoperability between IT-

systems and interfaces generally involves a trade-off. Refraining from

introducing standards will allow innovation and new products but often

also initially leads to increased fragmentation and lower interoperability

between systems and services. On the other side, harmonizing require-

ments will often make using existing solutions more convenient for users

but also decrease innovation.

As such, efforts to standardize and introduce interoperability should not

be introduced prematurely, stifling a market in continued evolution, and

the timing of introducing potential standards should be carefully consid-

ered. Given our assessment of the FinTech market, we believe it is too

early to consider such steps at the current juncture.

4. Balancing greater data sharing and transparency with data security

and protection needs

The importance of data cannot be understated in a digital economy. This

also applies in the area of financial services. Therefore, it is of utmost

importance that the regulatory framework on data is robust. In this regard,

we welcome the recent adoption of the GDPR and believe this will bring

the legal privacy framework of the EU into the future. Undoubtedly, these

rules will also impact financial services, in particular in the FinTech area.

In general, we believe that legislative initiatives concerning e.g. privacy

and the free flow of data should be applied throughout the economy and

not only apply to financial services.

Incentives for information sharing

When incentivising data sharing it is important to respect data privacy and

banking secrecy

–

especially when it comes to consumer data. While ac-

cess to data can lay the foundation for innovative solutions, it is important

to ensure sufficient protection of the consumer’s data.

Cyber security

Cyber security is an issue for the entire society and cannot be isolated to

the FinTech sector alone. Cybersecurity is equally important for globally

systemic banks as for small start-ups. Therefore, cyber security issues

should be dealt with at a horizontal level. The work on e.g. ICT Risk As-

sessment in the EBA is a good example of this. Currently, we do not see a

need for sector specific regulation on cyber security for FinTechs or other

financial institutions.

Managing cyber security within a financial institution is mainly a ques-

tion of corporate governance. The best measure against cyber threats is a

well-functioning cyber security set-up, focusing on the right risks (inter-

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nal and external risks) and having proper checks and balances. Different

forums could be set up for debating current threats, techniques, preven-

tion measures, best standards etc. Such forums could include both public

entities and industry members.