The Digital Finance Package
The Covid-19 pandemic has propelled the financial services industry’s digital transformation. Financial services consumers have become increasingly reliant on digital technology such as online banking and FinTech solutions due to the consequent lockdowns. Increased reliance on digital banking has sparked innovation, but it has also exposed consumers to certain risks and created financial stability concerns.
The European Commission has established a Digital Finance Package, which includes strategies for digital finance and retail payments, as well as legislative measures on crypto-assets and digital resilience. It is projected to increase Europe’s financial sector’s competitiveness and innovation, as well as provide customers with more alternative choices in financial services and modernized payments, while also assuring consumer safety and financial stability.
The Digital Finance Strategy
The Digital Finance Strategy sets out general lines on how the EU can support the digital transformation of finance in the coming years while regulating its risks. Its objectives include:
- Removing fragmentation in the Digital Single Market.
- Adapting the EU regulatory framework to enable digital innovation.
- Promoting data-driven finance.
- Addressing the problems and risks associated with digital transformation – including enhancing the digital operational resilience of the financial system.
Payments have recently been highlighted as a crucial issue for European sovereignty and the Euro’s international significance. At the same time, the payments market is a fiercely competitive and forward-thinking sector of the financial services industry, at the cutting edge of digitization.
The Retail Payments Strategy intends to expand the single payments market further so that the EU can fully benefit from innovation and digitisation possibilities. The plan is focused on four main objectives: creating the conditions to make the development of instant payments and EU-wide payment solutions possible; consumer protection and ensuring payment solutions are safe; and lessening Europe’s dependency on big global players in this area.
The impact of the Covid-19 pandemic has shown that digital and remote technologies are becoming increasingly important. The EU Commission recognizes the need to strengthen financial market participants’ digital operational resilience. The interconnectedness of all actors in the financial ecosystem, including third-party providers and the evolution of ICT risks, highlights the need for a standard minimum level of financial sector security based on international coordination. The European Bank Federation encourages the European Commission to address the upcoming reinforcement of operational resilience in customer-provider relationships for innovative service solutions following market participants’ responsibilities while respecting the proportionality principle.
In the strategy, the Commission takes a comprehensive approach to crypto assets’ opportunities, challenges, and risks, aiming to support blockchain technology’s potential throughout Europe. It’s crucial to strike a balance between consumer and investor protection and innovation. Protection is provided where crypto assets meet the requirements of existing legislation. However, the regulatory framework should respond appropriately to emerging, non-covered crypto-asset types, which could significantly impact consumer protection and monetary policy. Risks must be avoided by addressing issues such as transparency and supervision, avoiding fragmentation across the EU, based on the principle of “same services, same risks, same rules.”
The Future of Digital Finance
The Commission’s goal is for Europe to be at the forefront of digital finance, with strong European market actors leading the way. The banking industry in the EU should seize all the benefits that digitalization has to offer. Consumers and companies in Europe should profit from digital finance, and Europe should encourage digital finance based on European values and risk management.
It is expected to increase Europe’s financial sector’s competitiveness and innovation and provide customers with more choices and options in financial services and contemporary payments while also assuring consumer safety and financial stability.
This article is part of the FinTalk Podcast Series by Finance Malta and Tech.mt’s CEO, Dana Farrugia.
Posts in Series:
- The Digital Transformation in the Financial Industry
- The priority areas of the Digital Finance Strategy by the EU Commission
- A step forward in regulating crypto assets
- Addressing the mitigation of ICT-risks within the financial sector in relation to the EC proposal
- The rise of Digital Payment Methods