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

Regulatory challenges for financial services in the digital age

By Nava Mario - Director for Regulation and Prudential Supervision of Financial Institutions, DG for Financial Stability, Financial Services and Capital Markets Union, European Commission

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Digitalisation has already transformed the financial industry in-depth. Providers offer and sometimes even contract their products and services through on-line distribution channels to better informed consumers who now expect these services to be available anytime, anywhere and for the best price. At the same time, fintech companies are also developing rapidly, proposing new business models and new services in all clusters such as payments, lending and investment management, thereby becoming a real driver for competition vis à vis incumbents. In that context, established players will have to continue adapting their structures, internal processes and services and maybe their business models, possibly proactively cooperating with fintechs.

More changes will transform this industry in the coming decade due to other technological trends such as cloud computing or big data, which have not reached their full potential in the financial services so far. New business models and services are likely to emerge both in the banking and insurance markets. Besides, new technology such as distributed ledgers (e.g. blockchain), the underlying technology of virtual currencies, may disrupt financial markets in the coming years, enabling quicker, cheaper and safer transactions which could find various domains of applications, quite different from only payments.

In this fast moving environment, regulators should find the right balance between fostering innovation as a potential driver for competition and growth in the financial services, and ensuring at the same time that financial stability, but also security and safety are not undermined. A good example of smart regulation in such context is the recently modernised Directive on Payment Services. EU regulators managed to provide a more appropriate regulatory framework for fintechs active in the area of payments opening up the market to new entrants whilst strengthening security standards to the benefit of users.