Fintech is a fashionable subject. It could not be otherwise as it is deeply and permanently changing banking and financial activities as well as professionals concerned.
The European Commission is fully aware of this state of affairs and has just published a « consumer financial services action plan », aiming in particular at supporting « the development of an innovative digital world which can overcome some of the existing barriers to the Single Market ». The Commission is also launching a public consultation on the Fintech and its regulation, presented as « the new frontier in the field of financial services ». The Commission will present the EU strategy for Fintech before the end of the year.
Are current legal statuts fit for the Fintech?
At first glance, one might think that the current regulation and its set of authorisations are a brake on the appearance of new actors. This first impression is sometimes misleading. Indeed, there are some flexible statuts that some Fintech companies can use.
In France, this is the case for the statuts of CIF (financial investment advisor, used for example for certain robot-advisers), IOBSP (bank intermediary and payment service) or the more recent CIF (participatory investment adviser) and IFP (participatory financing intermediary) in crowdfunding, as well as the full range of insurance brokers and agents, and the simplified statuts (« small » electronic money institutions) or exempted (« Limited networks » for payment and electronic money).
These statuts have a point in common: the core of their activity consists in advising clients, the execution of operations being most often left to traditional actors, more heavily controlled.
The difficulty is rather due to the understanding of these regulatory frameworks by young start-ups, disconnected to the banking world. This is where the teaching role of supervisors (AMF and ACPR) is essential. This explains why fintech desktops have been set up.
It should be noted that the blockchain phenomenon raises other legal issues, which are currently the subject of a consultation by the French Ministry for the Economy and Finance (under the law « Sapin 2 » and the use of blockchain technology for issuance and assignement of unlisted securities).
The banking data war
The digital transformation of banking institutions and recent regulations lead financial institutions to construct real strategies around data, whether internal or external, in order to professionalise the practice of such an asset management and to extract the maximum value from it (from the optimisation of processes and risk models to the creation of new services, monetisation…).
This represents an important strategic challenge and the European Banking Authority opened in 2016 a consultation on bank « customer data » to analyze the risks and opportunities associated with the use of personal data by financial institutions. It also aims at determining whether a new regulation will be necessary in addition to the existing frameworks.
In fact, the « data management » file is now a priority for banks, who are watching with concern the Internet giants – Facebook, Apple, Google or Amazon – start operating in financial services. At the same time, Fintech is gaining momentum in payment services, with the new services authorised by the second directive on payment services (DSP2): initiation of payment and aggregation of banking data. In any case, it is the banking data, or the banking client, that is the nerve of war.
A systemic risk?
Would FinTech be a danger to global finance?
For the Financial Stability Board, a G8 parent institution, the question arises. Its president told during a G8 Finance that his organisation would look at the impact on the global system of new technologies applied to finance. The organisation is currently investigating the risks that the new financial technologies could cause to the system Financial system.
The World Economic Forum (WEF) shares the same concerns and called on governments, major financial players and fintech startups to unite and put in place more regulations to prevent a systemic risk to the economy.
Security, proportionality, equality and innovation
In a less alarmist tone, let us try to summarise the principles underpinning the sound regulation of the Fintechs, in a subtle balancing act.
First, security, which can never be sold off. The DSP2 recalls that « the security and safety of payment services is vital to the smooth functioning of the payment services market. Users should therefore be adequately protected against these risks … » (recital 7).
Secondly on the podium, the principle of proportionality, which the French, Belgian and German supervisors call for, is already reflected in certain European regulations. Indeed, the MiFID directive allows companies to collect a level of information that is commensurate with the products and services they offer (but without lowering the level of customer protection). Thus, it is reasonable to adapt financial regulation to the real nature of the risks and the size of the actors, but without creating discrimination (and here is the principle of equality).
Lastly innovation, growth, competition and well-being driver, which must therefore be promoted by an incentive regulation, bearing in mind that innovation is not an end in itself …
Further information: « Fintech and law – What regulation for new entrants in the banking and financial sector? « , By Thierry Bonneau and Thibault Verbiest, ed. Revue Banque, March 2017.
Author : Thibault Verbiest