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New trends in the financial sector - What regulatory framework for digital retail financial services (data protection, new entrants)?

Creating a digital single market for financial services

By Paavola Teppo - Chief Development Officer and General Manager of New Digital Businesses, Banco Bilbao Vizcaya Argentaria (BBVA)


The world is facing a colossal transformation due to the rise of digital technologies. Lower costs, faster adoption curves and more innovative products and services are the immediate effects of this wave of disruption, which we are only beginning to comprehend. In an increasingly global economy, the digital shift is reducing geographical barriers and increasing competition among firms and territories.

Europe has long realised that market integration and innovation are essential to preserve the continent’s competitive edge. The current Digital Single Market Strategy builds precisely on this vision and aims to remove the barriers that prevent the European Union from enjoying cross-border digital services.

The financial services industry will play a significant role in improving Europe’s digital competitiveness. On one hand, some of the continent’s financial institutions are worldwide digital champions exporting their know-how to markets across the globe. On the other, a sound financial system will support the growth of digital companies by providing finance and payments.

Banks are embracing digital change through the development of better products and services for their customers. Moreover, leading banks are completely reshaping customer experience and delivering entirely new value propositions based on an optimized use of data and user-centric design, without compromising some of their core values: trust, integrity, privacy and security.

Authorities are now challenged to provide in the shortest possible timeframe a regulatory framework that balances the promotion of these digital value propositions and the protection against associated risks. Besides, regulation will also need to reach an equilibrium between financial stability and the development of new business models that introduce efficiency gains in the market.
If Europe wants to lead innovation in financial services in a global context, regulators should create an environment that decisively fosters innovation, following the example of the UK’s Project Innovate and its innovation enabling policies, which have led London to become one of the world’s most important fintech hubs.

Banks are embracing digital change through the development of better products.

A clear understanding of the implications of the digital transformation should lead regulators to adopt some basic principles to guide the creation of future-proof rules. First, a holistic approach is needed in order to anticipate the cross-impact of digital, competition and financial regulations. Cooperation between different authorities is paramount to ensure that policy goals are effectively reached without inducing any unintended consequences.

Pan-European harmonisation is the second necessary condition. Despite the ongoing efforts by the European Commission, our continent is still a mosaic of divergent national regulations or supervisory practices in critical areas such as anti-money laundering, data management, cyber security and cloud computing. Some of these issues will be addressed with recent European regulatory packages, but further international coordination will be needed in those domains, which are global by nature.

Third, regulatory sandboxes would be ‘safe spaces’ in which businesses could test innovative products, services, business models and delivery mechanisms without immediately incurring all of the normal regulatory burden. This is particularly needed in areas such as blockchain (distributed ledger technologies), which is a potentially disruptive technology that still lacks maturity.

Finally, given the diversity of providers in this new ecosystem, there is need for a competitive environment in which similar products or services receive similar regulatory treatment. That is, regulation should be tailored to specific use cases and business models, regardless of the nature of the provider offering them.

If these conditions are met with the appropriate pace for the fast evolving digital world, we will be able to develop a digital single market for financial services, improving competition and fostering innovative offerings for European citizens. An integrated market will make scalability of new initiatives easier, hence contributing to the global competitiveness of European firms.