ESCB/European banking
supervision response to
the European
Commission’s public
consultation on a new
digital finance strategy for
Europe/FinTech action plan
August 2020
ESCB/European banking supervision response to the European Commission’s public
consultation on a new digital finance strategy for Europe/FinTech action plan
1
Contents
Executive summary 2
Introduction 5
1 Digital finance in the context of the pandemic crisis 7
2 The ECB’s general approach to digital finance 9
3 The ECB’s views on the priority areas identified by the Commission 11
3.1 The ECB’s views on Commission priority 1: ensuring that the
EU financial services regulatory framework is fit for the digital
age 11
3.2 The ECB’s views on Commission priority 2: enabling consumers
and firms to reap the opportunities offered by the EU-wide
Single Market for digital financial services by removing
fragmentation 12
3.3 The ECB’s views on Commission priority 3: promoting a
well-regulated data-driven financial sector for the benefit of EU
consumers and firms 14
ANNEX: The ECB’s response to the European Commission’s
questionnaire 15
General questions 15
1 Ensuring a technology-neutral and innovation friendly EU financial
services regulatory framework 18
2 Removing fragmentation in the single market for digital financial services 32
3 Promote a well-regulated data-driven financial sector 42
4 Broader issues 61
ESCB/European banking supervision response to the European Commission’s public
consultation on a new digital finance strategy for Europe/FinTech action plan
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Executive summary
This European System of Central Banks (ESCB)/European banking supervision
1
response (hereafter referred to as “the ECB response”) has been approved by the
Governing Council of the European Central Bank (ECB) and was prepared with the
assistance of national central banks (NCBs) and national competent authorities
(NCAs) and in consultation with the Supervisory Board of the ECB. A separate ESCB
response has addressed considerations regarding payments in the context of a
specific consultation of the European Commission on a retail payments strategy for
the European Union (EU), launched on the same day as this consultation.
The ECB broadly supports the priority areas identified by the European
Commission in the consultation document to foster the development of digital
finance in the EU, which have gained further in importance in the light of the recent
coronavirus (COVID-19) pandemic crisis, namely: (1) ensuring that the EU financial
services regulatory framework is fit for the digital age; (2) enabling consumers and
firms to reap the opportunities offered by the EU-wide Single Market for digital financial
services by removing fragmentation; (3) promoting a well-regulated data-driven
financial sector for the benefit of EU consumers and firms; and (4) enhancing the
digital operational resilience framework for financial services. As regards the latter
priority, the ECB has provided a separate contribution in the context of the specific
consultation launched by the Commission on this matter.
While the ECB recognises that financial technology (“fintech”) and innovation
may bring significant benefits for financial institutions, their customers, the
financial system and the broader economy, the digital transformation of the
banking sector has to be performed taking due account of the risks related to
the use of innovative technologies. The pandemic crisis has acted as a catalyst to
accelerate the already planned digitalisation efforts of the financial sector as well as
the further transformation of their business models, and has also highlighted additional
challenges and risks for financial institutions.
The ECB follows a technology-neutral approach to its areas of competence,
including banking supervision and the oversight of payment systems, in accordance
with the SSM Regulation and the Treaty on the Functioning of the European Union.
The ECB’s role is to ensure the safety and soundness of the banking sector,
maintaining a high standard of prudential supervision and oversight of payment
systems, schemes and instruments, irrespective of the particular business model or
the application of any particular technological solution. The ECB aims to maintain a
level playing field for banking services, and follows the guiding principle of “same
activity, same risks, same supervision and regulation”. In its role as catalyst in the field
of payments, the ECB fosters an innovative market for euro payments in cooperation
with the relevant stakeholders and pursues the objectives of strategic autonomy and
resilience.
1
“European banking supervision” refers to the Single Supervisory Mechanism (SSM) in view of the NCA
involvement in the preparation of this response.
ESCB/European banking supervision response to the European Commission’s public
consultation on a new digital finance strategy for Europe/FinTech action plan
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The ECB has responded to the evolving challenges and risks arising from
financial innovation on multiple fronts. On the central banking side, consistent with
its mandate to ensure financial stability and the smooth functioning of payment
systems, the ECB is monitoring and assessing the implications of fintech and actively
exploring new technologies that may prove useful in supporting the ECB’s functions.
On the banking supervision side, the ECB is assessing the evolving business models
and looking into the related new risks and challenges that banks are facing due to
innovation and digitalisation, and is closely monitoring banks’ related risk
management practices and internal governance also in the light of the current
pandemic crisis. In the same vein, the Eurosystem is also currently reviewing its
oversight frameworks for payment instruments.
One important challenge in relation to digital finance will be to reassess the
dependence of European financial service providers on non-EU providers of
critical services and technical infrastructures (e.g. the “cloud”), while EU-based
global players have struggled to emerge. This could lead to banks’ reliance on a few
non-EU service providers and possible concentration issues at both entity and
systemic levels.
In the context of the current regulatory framework, different entities which could
perform to a certain extent similar activities, such as credit institutions, e-money
institutions and payment institutions, are subject to various regulatory and supervisory
frameworks, either at national or European level. As this trend is accelerated by
innovation and digitalisation, this framework may need to be reviewed to ensure a
level playing field and maintain the principle of “same activity, same risks, same
supervision and regulation”. Moreover, as part of its oversight role over payment
systems, instruments and schemes, the ECB envisages enhancing its cooperation
with national authorities supervising payment service providers (PSPs).
As regards the above-mentioned priorities of the European Commission, the ECB
considers that:
• While the current EU financial services regulatory framework is already
broadly technology neutral, it should support fair competition and ensure
a level playing field in digital financial services, while addressing
associated risks and also reinforcing the need to develop strong risk
management at the firm level. Important areas for improvement would be to
enhance clarity on the application of existing laws and regulations to innovative
technologies and related business models, and to diminish the fragmentation
resulting from different legal and regulatory frameworks and industry standards
across EU Member States, in order to foster the Internal Market, the
pan-European application of standards and a level playing field.
• With regard to facilitating the use of digital financial identities throughout the EU,
the ECB fully endorses the mandatory use of unique identifiers, based on
internationally recognised global standards including legal entity identifiers
(LEIs), unique transaction identifiers (UTIs) and unique product identifiers (UPIs).
ESCB/European banking supervision response to the European Commission’s public
consultation on a new digital finance strategy for Europe/FinTech action plan
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• The ECB supports the need for enhanced cooperation throughout the EU
on different schemes such as regulatory sandboxes and innovation hubs,
and acknowledges the benefits of fostering an open dialogue between
supervisors and supervised entities. This may encourage banks (and other
financial entities) to launch innovative solutions, while being able to monitor the
accompanying risks in a controlled environment.
• The ECB considers that open finance can have implications for the
supervised banks, at both entity and systemic levels and also as regards the
nature of the cooperation between these banks and new potential actors, such as
third-party providers. In this respect, the ECB is adapting its supervisory
approach towards the regulated entities to the new landscape that the revised
Payment Services Directive (PSD2) has enabled, also in anticipation of the next
developments. While open finance and the use of alternative data (such as data
from public sources) can enable the modernisation of banks’ internal processes,
it should however be ensured that customer data sharing, also with third-party
providers, meets clear legal requirements and fulfils security standards.
ESCB/European banking supervision response to the European Commission’s public
consultation on a new digital finance strategy for Europe/FinTech action plan
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Introduction
On 3 April 2020, the European Commission launched a public consultation covering a
range of issues that fall under the umbrella term “digital finance”, aiming to contribute
to the new EU FinTech action plan to be published later this year.
2
The Commission
seeks to identify if there is a need to adapt the current regulatory framework or to
launch new initiatives, against the backdrop of a rapidly evolving financial landscape,
driven by a fast uptake of technologies by incumbent firms and the entrance into the
market of new players (including technology companies).
The ECB welcomes this consultation in view of the key relevance of digital finance for
the entire financial sector. Enhanced technological possibilities and changing
customer demands have affected markets and businesses worldwide, including the
European financial sector. In line with the European Commission’s objectives, the
ECB considers that it is essential for Europe to manage, regulate and supervise the
financial system in a way that promotes and protects Europe’s values and financial
stability.
Against this background, this ECB response, which has been approved by the
Governing Council of the ECB, was prepared with the assistance of ESCB committees
and of NCAs through the internal structures of the ECB and in consultation with the
Supervisory Board of the ECB. The Annex specifies the views of the ECB regarding
various questions raised by the European Commission in its consultation
questionnaire. The ECB has focused its response on the questions falling within its
central banking and banking supervision tasks and has not expressed views on
aspects which do not relate to its mandate (e.g. consumer protection). In order to
ensure consistency, the term “ECB” will be used throughout the response to express
these views.
The European Commission has identified the following priorities:
1. ensuring that the EU financial services regulatory framework is fit for the digital
age, i.e. technology neutral and innovation friendly;
2. enabling consumers and firms to reap the opportunities offered by the EU-wide
Single Market for digital financial services by removing fragmentation;
3. promoting a well-regulated data-driven financial sector for the benefit of EU
consumers and firms;
4. enhancing the digital operational resilience framework for financial services.
Priority 4 is not covered in this ECB response since this priority and related questions
were covered in a previous European Commission public consultation launched in
2
The current consultation follows two previous European Commission public consultations launched in
December 2019, focusing on crypto-assets and digital operational resilience respectively. The
Commission has also launched a specific consultation on a retail payments strategy for the EU, in parallel
to the present one. All four consultations contribute to informing the European Commission in view of a
new digital finance strategy for Europe/FinTech action plan to be published in the third quarter of 2020.
ESCB/European banking supervision response to the European Commission’s public
consultation on a new digital finance strategy for Europe/FinTech action plan
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December 2019 on digital operational resilience for which the ECB has provided a
separate contribution.
Furthermore, considerations regarding payments are addressed in a specific
consultation of the European Commission on a retail payments strategy for the EU
launched on the same day as the present consultation and for which a specific ESCB
response has been submitted.
3
The ESCB response identifies a need for coordinated
action on multiple fronts to reinforce the EU’s independence and competitiveness in
the field of payments. In this respect, the successful roll-out of instant payments is a
strategic priority that could benefit to an equal degree from mandatory adherence to
the SEPA Instant Credit Transfer scheme and from adding instant credit transfers to
the list of services of the Payment Accounts Directive
4
, under certain conditions. The
ESCB response also encourages the Commission to revise the Settlement Finality
Directive (SFD)
5
so that adequately supervised or overseen entities (e.g. e-money
and payment institutions) become eligible to directly access SFD-designated payment
systems, while at the same time avoiding the creation of undue risks for payment
systems. Similarly, the ESCB supports taking regulatory action to ensure open access
to key technical infrastructure services (e.g. mobile device capabilities) based on
transparent, objective and non-discriminatory criteria that take into account security
standards, oversight and supervisory requirements. The ESCB response stresses the
importance of satisfying the needs of all EU citizens by preserving access to, and
acceptance of, cash at the point of sale.
3
See the “European System of Central Banks response to the European Commission’s consultation on a
retail payments strategy for the EU” on the ECB website.
4
Directive 2014/92/EU of the European Parliament and of the Council of 23 July 2014 on the comparability
of fees related to payment accounts, payment account switching and access to payment accounts with
basic features (OJ L 257, 28.8.2014, p. 214).
5
Directive 98/26/EC of the European Parliament and of the Council of 19 May 1998 on settlement finality
in payment and securities settlement systems (OJ L 166, 11.6.1998, p. 45).
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consultation on a new digital finance strategy for Europe/FinTech action plan
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1 Digital finance in the context of the pandemic crisis
Financial technology (“fintech”)
6
may bring significant benefits for financial
institutions, their customers, the financial system and the broader economy.
The emergence of fintech has led to changes in their business models. Fintech can
improve the customer experience, enabling for example digital onboarding, the use of
online customer interfaces, and the roll-out of services and products in a more
affordable and efficient manner. The application of artificial intelligence (AI), coupled
with the large volumes of data now available, can also help financial institutions
improve many of their back-office functions. More generally, fintech has a significant
potential to enhance the competitiveness of the EU financial sector by deepening the
Internal Market and fostering the capital markets union. As pointed out by the
European Commission
7
, strong and innovative digital capacities in the financial sector
will help improve the EU’s ability to deal with emergencies such as the COVID-19
outbreak. On the other hand, this digital transformation has to be performed taking due
account of the risks related to the use of innovative technologies.
The pandemic crisis has highlighted the need for banks
8
and financial market
infrastructures (FMIs) to avail of mature digital capabilities to deliver products
and services. In this respect, banks have adjusted their operations, ensuring
business continuity and enabling them to continue to provide services on a
cross-border basis.
9
These are not new phenomena for the banking sector, but the
crisis is acting as a catalyst to accelerate the already planned digitalisation efforts of
banks as well as the further transformation of their business models.
It is still too early to tell how the post-pandemic landscape will look.
Nevertheless, this crisis has also highlighted additional challenges and risks for banks,
PSPs and FMIs. As they transfer their processes to contingency environments, their
exposure to cyber threats increases, as does the risk of IT failures. Banks’ IT systems
must be resilient enough to withstand the current heavy reliance on remote working
and servicing. Furthermore, digitalisation strategies require sufficient means, a due
implementation supported by knowledgeable staff, measured by financial and
non-financial risk metrics, and adequate governance procedures. Finally, updating or
even replacing legacy IT systems may require significant efforts, especially if banks
use multiple IT systems which are linked together.
The euro area central banks and supervisors are closely monitoring how technological
changes and innovation affect financial markets and banks. As further explained
below, the ECB will continue to engage with the banking industry, in order to
adequately tailor its supervisory approach and its approach to oversight, also with a
6
Fintech is a term used throughout the response to refer to financial technology – in the ECB’s view an
umbrella term for any kind of technological innovation used to support or provide financial services that
could result in changes to business models, applications, processes or products.
7
See the consultation document (page 8) on the European Commission’s website.
8
The terms “bank” and “credit institution”, as defined in Article 4(1) of Regulation (EU) No 575/2013 of the
European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions
and investment firms, are used interchangeably.
9
See also the blog post by Pentti Hakkarainen, Member of the Supervisory Board of the ECB, entitled “The
first lesson from the pandemic: state-of-the-art technology is vital”, 8 May 2020.
ESCB/European banking supervision response to the European Commission’s public
consultation on a new digital finance strategy for Europe/FinTech action plan
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view to ensuring that the euro area banking sector is in a position to face the
challenges of the new post-pandemic environment.
10
It is up to banks however to face this new reality, shift to greater digitalisation and step
up their innovation efforts, in order to meet changing customer demands, with
adequate risk management procedures in place. If banks adopt an agile, responsible
and risk-based approach towards innovation, they could face the increased
competition in the financial sector and amend their value proposition, streamline their
internal processes and become more cost efficient, ensuring the sustainability of their
business models.
10
For further information, see Box 4 of the “ECB Annual Report 2019”.
ESCB/European banking supervision response to the European Commission’s public
consultation on a new digital finance strategy for Europe/FinTech action plan
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2 The ECB’s general approach to digital finance
Regarding innovation and technology in the digital finance area – and in line
with its principles – the ECB follows a technology-neutral approach to
supervision and oversight. The ECB’s role is to ensure the safety and soundness of
the banking sector, maintaining a high standard of prudential supervision, irrespective
of the application of any particular technological solution. With regard to its oversight
role
11
, the ECB is currently revising its harmonised oversight approach, which sets
common oversight standards for payment instruments and schemes. The new
framework includes, besides payment schemes, the assessment of payment
arrangements providing different technological solutions. The aim is to evaluate the
associated risks and mitigate them regardless of technological implementation.
The ECB has responded to the evolving challenges and risks arising from
financial innovation on multiple fronts. On the central banking side, consistent
with its mandate to ensure financial stability and the smooth functioning of payment
systems, the ECB is monitoring and assessing the implications of fintech and actively
exploring new technologies that may prove useful in supporting the ECB’s functions.
Profitability pressures stemming from competition with technology companies are
being amplified by banks’ needs for investment in digitalisation, which requires time to
yield net benefits. Growing interlinkages with firms could mean that any disruptions
might have systemic implications for the financial system unless adequate safeguards
are put in place. Another important challenge in relation to digital finance will be to
reassess the dependence of financial institutions on non-EU providers of critical
services and technical infrastructures (e.g. the cloud), while EU-based global players
have struggled to emerge. This could lead to banks’ reliance on a few non-EU service
providers at both the entity and systemic levels. On the banking supervision side,
the ECB is looking into the new risks and challenges that banks are facing due to
innovation and is closely monitoring their risk management practices, also in light of
the current pandemic crisis. The risks associated with the use of fintech are not limited
to IT. The ECB is therefore adapting its methodological toolbox, reflecting on the
technologies used and providing supervisory recommendations across all prudential
risk categories, including governance, business model and operational risk.
The ECB’s ongoing work within the euro area aims to foster a common approach to
fintech-related risks, ensure a consistent supervisory approach across the euro area
and open a dialogue with the industry
12
, also in view of its mandate in relation to the
authorisation and supervision of banks in the euro area.
13
The ECB aims to maintain a
level playing field for banking services and financial services more generally, and
11
According to the
Eurosystem oversight policy framework, the Eurosystem pursues three complementary
approaches to promote the safety and efficiency of FMIs, namely: (i) owning and operating FMIs;
(ii) conducting oversight activities; and (iii) acting as a catalyst. The term “FMI” encompasses, inter alia,
payment systems, and clearing and settlement systems. Furthermore, as payment instruments and
payment schemes are an integral part of payment systems, the Eurosystem includes these in central
bank oversight of payment systems.
12
See the ECB Banking Supervision website.
13
In accordance with Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific tasks
on the European Central Bank concerning policies relating to the prudential supervision of credit
institutions, the ECB has the tasks to, amongst others, decide on common procedures for credit
institutions in the euro area, perform direct supervision of significant institutions in the euro area and
oversee the functioning of the system.
ESCB/European banking supervision response to the European Commission’s public
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follows the guiding principle of “same activity, same risks, same supervision”
14
and
regulation. This means that similar activities that generate similar risks require the
same regulatory treatment and supervisory approach, in order to ensure consistency.
This has also been reflected in the regulatory framework and supervisory approach
further specified in the SSM Supervisory Manual. While the ECB does not prescribe
how banks should conduct their business, supervisors look into the risks related to the
bank’s activities and if they are adequately managed. In this regard, the ECB is
proactively engaging with banks to gain knowledge of their transformation process
and take-up of innovative technological solutions. This work in relation to digital
transformation and the use of innovative technologies is conducted by assessing
banks’ business model changes and related risks. The work on fintech supervision has
also been made part of the SSM supervisory priorities for 2020
15
to assess banks’
business models in the light of increasing digitalisation and related risks such as IT
and cyber risks.
Therefore, it is of utmost importance to assess the risks and benefits arising from new
technologies in the increasingly digital and changing landscape. The ECB is
continuously adapting its supervisory (and oversight) approach vis-à-vis fintech,
leveraging on knowledge gained through industry dialogues and exchanges with other
authorities. In this regard, the ECB’s supervisory approach will benefit from the
support of legislation that is technology neutral and addresses the new landscape and
risks related to digitalisation and innovation.
In the context of the current regulatory framework, different entities which could
perform to a certain extent similar activities, such as credit institutions, e-money
institutions and payment institutions, are subject to varying regulatory and supervisory
frameworks, either at national or European level. As this trend is accelerated by
innovation and digitalisation, this framework may need to be reviewed to ensure a
level playing field and maintain the principle of “same activity, same risks, same
supervision and regulation”. Moreover, as part of its oversight role over payment
systems, schemes and instruments, the ECB envisages enhancing its cooperation
with national authorities supervising PSPs.
14
See the speech entitled “A binary future? How digitalisation might change banking” by Andrea Enria,
Chair of the Supervisory Board of the ECB, at the banking seminar organised by De Nederlandsche
Bank, Amsterdam, 11 March 2019.
15
See the “SSM Supervisory Priorities 2020” on the ECB Banking Supervision website.
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consultation on a new digital finance strategy for Europe/FinTech action plan
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3 The ECB’s views on the priority areas identified by the
Commission
As mentioned above, the ECB broadly supports the priority areas identified by the
Commission in relation to digital finance and the related policy work to spur the
development of digital finance in the EU. Indeed, this is in line with the ECB’s priority to
remain technology neutral, while taking into account new benefits and risks related to
innovation and digitalisation. The ECB’s views on the consultation’s questions in
relation to the three priorities in question are further specified below.
3.1 The ECB’s views on Commission priority 1: ensuring that the EU
financial services regulatory framework is fit for the digital age
In the ECB’s view, the European Commission’s priority appears to be in line
with the current EU financial services regulatory framework, which is already
broadly technology neutral. However, in matters of regulation, technological neutrality
is not a means in itself: it needs to be balanced against the risks that the free use of
technological innovation may entail. The EU financial services regulatory framework
should support fair competition in digital financial services, while addressing
associated risks and also reinforcing the need to develop strong risk management at
the firm level. Furthermore, the development of digital finance should take into
consideration wide accessibility of basic financial services and the technologies that
underpin them.
The ECB supports a technology-neutral approach to regulation, supervision
and oversight.
16
While remaining mindful that new technologies do not undermine
common standards and interoperability, the ECB does not attempt to steer the market
in one direction or the other when it comes to the use of particular technologies.
17
Recent developments in technologies and financial market players suggest that the
regulatory framework should be further clarified and adapted to the new digital reality
to preserve and enhance the level playing field of the EU financial system in the
evolving landscape. For example, the entrance of technology companies into the
financial services sector, big technology (“big tech”) companies in particular,
has raised concerns that the principle of “same activity, same risks, same
supervision” and regulation could be undermined.
18
Should big tech companies
decide to enter financial services on a large scale, and especially into the retail market,
it has to be ensured that risks associated with their activities are appropriately
captured and addressed in the regulatory framework.
16
See also the panel remarks “On supervisory architecture” by Andrea Enria, Chair of the Supervisory
Board of the ECB, at the Financial Stability Institute 20th anniversary conference, Basel, 12 March 2019.
17
See also the speech entitled “A binary future? How digitalisation might change banking” by Andrea Enria,
Chair of the Supervisory Board of the ECB, at the banking seminar organised by De Nederlandsche
Bank, Amsterdam, 11 March 2019.
18
Ibid.
ESCB/European banking supervision response to the European Commission’s public
consultation on a new digital finance strategy for Europe/FinTech action plan
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Through the licensing process
19
and the ongoing supervision of banks in the euro
area (both significant and less significant institutions), it can be observed that certain
aspects of the supervision of banks’ use of innovative technologies and
digitalisation strategies require enhanced attention, touching on various topics.
These topics include: (i) the increased use of cloud service providers, leading to
concentration (both idiosyncratic and systemic) among a few providers, including big
tech companies; (ii) the use of AI for a range of functions, e.g. credit scoring and
robo-advice, to ensure the performance of the models and also prevent bias; (iii) the
move towards an open banking model to enhance the effective and safe use of
available data; (iv) the use of distributed ledger technology (DLT) for certain activities,
such as trade finance, requiring a good governance of the platforms and an
understanding of the technologies; and (v) regulatory technology (regtech), for the
purpose of meeting regulatory requirements, reporting, supporting compliance and
enhancing risk management in a credit institution.
The ECB is continuously adapting its supervisory approach to banks’ use of
innovative technologies, leveraging on knowledge gained through its own
experience with advanced technologies, industry dialogues and exchanges
with other authorities in the European and global fora. The ECB’s objective is to
promote a common understanding of fintech-related risks and ensure that they are
assessed in a consistent manner across the euro area.
Overall, the ECB considers that important areas for improvement would be to
enhance clarity on the application of existing laws and regulations to innovative
technologies and related business models, and to diminish the fragmentation resulting
from different legal and regulatory frameworks and industry standards across EU
Member States, in order to foster the Internal Market, the pan-European application of
standards and a level playing field. In this regard, targeted amendments to
legislation, interpretative guidance and a periodic review of existing rules would
be useful to ensure that the EU framework remains effective and technology neutral.
While the ECB sees some benefits in bespoke regimes for nascent technologies, such
as DLT, these will have to be balanced against the risks of their leading to a complex
and potentially inconsistent regulatory framework.
3.2 The ECB’s views on Commission priority 2: enabling consumers and
firms to reap the opportunities offered by the EU-wide Single Market
for digital financial services by removing fragmentation
A level playing field is of utmost importance to fully reap the opportunities of an
EU-wide Single Market for digital financial services. This requires, among other things,
building up reliable legal and monitoring frameworks. An important step in that
direction would be a generally accessible real-time European business register,
whether centrally managed or as a digitally linked network of national registers. Such a
19
See “Guide to assessments of fintech credit institution licence applications”, ECB Banking Supervision,
September 2017.
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register should contain unique entity identifiers and information on the structure of
institutions, preferably LEIs.
In this context and with regard to facilitating the use of digital financial identities
throughout the EU, the ECB fully endorses the mandatory use of different
identifiers, based on internationally recognised global standards including LEIs, UTIs
and UPIs, which is crucial to reap the benefits of and speed up the comprehensive
digitalisation and automation of processes in financial services. With regard to the LEI,
the ECB considers that it is a key and indispensable element of digital financial
identities, and that it should be leveraged and used to the greatest extent possible. In
that context, it should be noted that the European Systemic Risk Board has set up a
task force to prepare a recommendation on the establishment of an EU legislative
framework for greater adoption of LEIs across the EU, requiring all legal entities in the
EU to have an LEI and that each entity’s LEI is also mandatory for financial transaction
and public reporting. The ECB is of the view that the various aspects of the European
Commission’s identified framework, in relation to providing rules and guidance at an
EU level, are relevant and justified, and can create greater efficiency of such
frameworks.
In addition, the ECB supports the need for enhanced cooperation throughout the
EU on different schemes such as regulatory sandboxes and innovation hubs,
and acknowledges the benefits of fostering an open dialogue between supervisors
and supervised entities. The ECB notes that regulatory sandboxes are under
development in various Member States. While the setting-up of an EU-wide
sandbox would be a task for the legislator to decide on, such an initiative, as well
as national initiatives, would need to be in line with the European regulatory framework
and the division of competences contained therein, as well as the ECB’s mandate for
licensing credit institutions and supervising credit institutions.
20
Therefore, the ECB
welcomes the European Commission’s initiatives to address cross-border aspects
when European entities operate in such schemes, in order to ensure a harmonised
approach and foster a level playing field.
With regard to the use of passporting to scale up activities across the Member States,
the ECB welcomes the work of the European Banking Authority (EBA) on potential
impediments to the cross-border provision of banking and payment services.
21
The
ECB supports further work by the Commission/EBA on the cross-border
provision of services, which is especially relevant for digital finance. Currently,
only some Member States have defined a framework for credit institutions to provide
cross-border financial services using intermediaries (e.g. branches) in another
Member State and the respective notification process. The ECB is of the view that
additional clarity could be helpful in this area to ensure a consistent approach
throughout the EU and foster the ease of cross-border operations which are especially
relevant for digitally operating credit institutions.
20
See also the speech entitled “Innovation and digitalisation in payment services” by Yves Mersch, Member
of the Executive Board of the ECB, at the Second Annual Conference on “Fintech and Digital Innovation:
Regulation at the European level and beyond”, Brussels, 27 February 2018.
21
“Report on potential impediments to the cross-border provision of banking and payment services”,
European Banking Authority, 29 October 2019.
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14
Finally, taking a broader perspective, the ECB supports the cooperation throughout
the EU in the context of other initiatives, e.g. those aiming to monitor the fintech
phenomenon in Europe and related statistical initiatives.
22
3.3 The ECB’s views on Commission priority 3: promoting a
well-regulated data-driven financial sector for the benefit of EU
consumers and firms
The ECB considers that open finance can have implications for the supervised
banks, at both the entity and systemic levels and also as regards the nature of the
cooperation between these banks and new potential actors, such as third-party
providers. The revised Payment Services Directive (PSD2)
23
has created a new
environment for access to payment account data, as well as the potential for
added-value services. These data can now be shared with competitors, including
non-banks. At the same time, technological developments have made big data, cloud
services and AI algorithms more accessible, increasing the value of data for banks.
Against this background, the ECB is adapting its supervisory approach towards the
regulated entities to the new landscape that PSD2 has enabled, also in anticipation of
the next developments.
With respect to consent-based access to personal data and data sharing in the
financial sector, in the ECB’s view, alternative data sources such as public data
could be useful in providing insights, even though supervisory decisions or actions
cannot be taken based directly and solely on such data, also in view of data quality
issues. However, data generated by means of advanced technologies can
complement the data collected by traditional means. For instance, alternative data
from the news and social media can be used for sentiment analysis. Some alternative
data sources are public and, in this sense, bring the benefit that they are widely
accessible with limited or no confidentiality restrictions.
22
See, for example, “IFC Report on central banks and fintech data issues”, Bank for International
Settlements, February 2020.
23
Directive (EU) 2015/2366 of the European Parliament and of the Council of 25 November 2015 on
payment services in the internal market (OJ L 337, 23.12.2015, p. 35).
ESCB/European banking supervision response to the European Commission’s public
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ANNEX:
The ECB’s response to the European
Commission’s questionnaire
General questions
Question 1
What are the main obstacles to fully reap the opportunities of innovative technologies
in the European financial sector (please mention no more than 4)?
Please also take into account the analysis of the Expert Group on Regulatory
Obstacles to Financial Innovation
24
in that respect.
The ECB considers the following to be the most important areas for improvement, so
that European financial service providers can fully reap the opportunities that have
arisen from the emergence of innovative technologies:
1. Enhance clarity on the application of existing laws and regulation to innovative
technologies and related business models. Some technological innovations
entail a degree of legal uncertainty, which could hinder the uptake of innovation
by financial service providers. The uncertainty stemming from the lack of a stable
legal taxonomy in this area, taking into account new innovative applications in the
financial sector for the performance of financial activities and for the delivery of
products and services, as well as the specific requirements related to the use of
innovative technologies, could subsequently lead to uncertainty as to the
regulatory and supervisory regime applicable to newcomers as well as
incumbents, including with regard to anti-money laundering (AML) and
know-your-customer (KYC) requirements. For instance, regarding the General
Data Protection Regulation (GDPR) and other relevant legislation, guidance
would be needed on the application of the requirement for erasure in DLT
platforms, as well as on the issue of specificity of user consent in AI models.
2. Diminish the fragmentation due to different legal and regulatory frameworks
and industry standards across EU Member States, in order to foster the Internal
Market, the pan-European application of standards and a level playing field.
3. Reassess the dependence of financial institutions on providers of critical digital
services (e.g. cloud-based services) and technical infrastructures, which are
mostly non-EU providers. At the same time, EU-based global players have
struggled to emerge.
24
“Final report of the Expert Group on Regulatory Obstacles to Financial Innovation: 30 recommendations
on regulation, innovation and finance”, European Commission, 13 December 2019.
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4. Enhance the assessment of risks and benefits arising from new
technologies, in view of the increasingly digital and changing landscape.
The ECB is continuously adapting its supervisory and oversight approach to
fintech, leveraging on knowledge gained through its own experience in applying
advanced technology, industry dialogues, exchanges with other authorities and
participation in fora focused on innovation, such as the European Forum for
Innovation Facilitators (EFIF). The objective is to promote a common
understanding of fintech-related risks among supervisors and legislators and to
ensure that they are assessed in a consistent manner within the EU.
Question 2
What are the key advantages and challenges consumers are facing with the
increasing digitalisation of the financial sector (please mention no more than 4)?
For each of them, what if any are the initiatives that should be taken at EU level?
The ECB refrains from answering questions in relation to consumer protection.
Building on previous policy and legislative work, and taking into account the
contribution digital finance can make to deal with the COVID-19 emergency and its
consequences, the Commission services are considering four key priority areas for
policy action to spur the development of digital finance:
1. ensuring that the EU financial services regulatory framework is
technology-neutral and innovation friendly;
2. reaping the opportunities offered by the EU-wide Single Market for digital
financial services for consumers and firms;
3. promoting a data-driven financial sector for the benefit of EU consumers and
firms; and
4. enhancing the operational resilience of the financial sector.
Question 3
Do you agree with the choice of these priority areas?
Yes
No
Don’t know / no opinion / not relevant
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Question 3.1
Please explain your answer to question 3 and specify if you see other areas that would
merit further attention from the Commission:
Subject to the following remarks, the ECB supports the European Commission’s
choice of priority areas, which appear to be broadly justified and consistent with the
legal framework related to EU financial services regulation.
Specifically, the EU financial services regulatory framework is already broadly
technology neutral. Looking at the legal framework governing the banking sector, the
Capital Requirements Regulation and Directive (CRR/CRD)
25
package does not
include any provisions regarding preferential treatment in relation to banks using
innovative technologies. In addition, the revised Markets in Financial Instruments
Directive (MiFID II)
26
speaks of a “system” in the context of defining regulated
markets, multilateral trading facilities (MTFs) or organised trading facilities (OTFs)
without distinguishing in terms of the technology they deploy. Equally, from a
payments and post-trading perspective, the revised Payment Services Directive
(PSD2)
27
, the Settlement Finality Directive (SFD)
28
, the Systemically Important
Payment Systems Regulation (SIPSR)
29
, the European Market Infrastructure
Regulation (EMIR)
30
and the Centralised Securities Depository Regulation (CSDR)
31
describe a “system” in contractual rather than technological terms. As a regulatory
focus, technological neutrality – especially in an open market economy with free
competition, such as the Single Market – is conducive to innovation-friendly regulatory
outcomes.
However, in matters of regulation, technological neutrality should not be viewed in
isolation; instead, it needs to be balanced against the risks that the free use of
technological innovation may entail. There are several examples where the EU
legislator regulated technological developments differently due to their novel risks. For
instance, MiFID II seeks to ensure that algorithmic trading or high-frequency
algorithmic trading techniques do not create a disorderly market and cannot be used
for abusive purposes. Similarly, while the GDPR
32
acknowledges that the increased
25
Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on
prudential requirements for credit institutions and investment firms (OJ L 176, 27.6.2013, p. 1) and
Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the
activity of credit institutions and the prudential supervision of credit institutions and investment firms
(OJ L 176, 27.6.2013, p. 338).
26
Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in
financial instruments (OJ L 173, 12.6.2014, p. 349).
27
Directive (EU) 2015/2366 of the European Parliament and of the Council of 25 November 2015 on
payment services in the internal market (OJ L 337, 23.12.2015, p. 35).
28
Directive 98/26/EC of the European Parliament and of the Council of 19 May 1998 on settlement finality
in payment and securities settlement systems (OJ L 166, 11.6.1998, p. 45).
29
Regulation of the European Central Bank (EU) No 795/2014 of 3 July 2014 on oversight requirements for
systemically important payment systems (ECB/2014/28) (OJ L 217, 23.7.2014, p. 16).
30
Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC
derivatives, central counterparties and trade repositories (OJ L 201, 27.7.2012, p. 1).
31
Regulation (EU) No 909/2014 of the European Parliament and of the Council of 23 July 2014 on
improving securities settlement in the European Union and on central securities depositories (OJ L 257,
28.8.2014, p. 1).
32
Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the
protection of natural persons with regard to the processing of personal data and on the free movement of
such data (OJ L 119, 4.5.2016, p. 1).
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scale of collection and sharing of consumers’ personal data due to technological
developments brings new challenges for the protection of personal data (e.g. in
relation to DLT and erasure), it calls upon technology to facilitate the free flow of
personal data within the EU and to ensure a high level of data protection. Therefore,
the European Commission’s consultation paper identifies priority areas which are in
line with technological neutrality and innovation friendliness.
In addition, EU regulation should support fair competition in digital financial services.
Technology-neutral regulation also serves this objective. Furthermore, the
development of digital finance should take into consideration wide accessibility of
basic financial services and the technologies that underpin them.
A further priority area could be to harmonise substantive rules related to digital finance
(e.g. formation of digital contracts, transfer of crypto-assets, whether outright or by
way of collateral, cross-border technical acceptance of eID/eSignature solutions, legal
validity of smart contracts and blockchain-registered transactions). Considering the
likely challenges, an incremental approach would seem more advisable, placing the
emphasis on the regulation of the cross-border aspects of digital finance activities.
The accessibility of basic financial services by all user groups (including vulnerable
groups) should also be considered as a relevant issue, as well as digital inclusion,
because increased digitalisation of financial services requires new skills of users and
adequate access to technologies.
1 Ensuring a technology-neutral and innovation friendly EU
financial services regulatory framework
Question 4
Do you consider the existing EU financial services regulatory framework to be
technology neutral and innovation friendly?
Yes
No
Don’t know / no opinion / not relevant
Question 4.1
If not, please provide specific examples of provisions and requirements that are not
technologically neutral or hinder innovation:
Overall, the ECB considers that the current EU framework is technologically neutral,
as banks need to fulfil the same requirements depending on the specificities of their
business model and risk profile, while on this basis proportionality can also be applied
ESCB/European banking supervision response to the European Commission’s public
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(for specific examples that this may not be the case, please refer to the report of the
Expert Group on Regulatory Obstacles to Financial Innovation).
33
In line with the above-mentioned report, it should be analysed to what extent the
current framework for financial services is technology neutral and able to
accommodate fintech innovation and whether it needs to be adapted, also with a view
to making the framework suitable for further innovations within the financial sector.
The ECB is of the view that interpretative guidance, targeted amendments and a
periodic review of existing rules would be useful to ensure that the EU framework
remains technology neutral also going forward, given the change of the nature of
banks’ business models as a result of innovation and digitalisation.
Question 5
Do you consider that the current level of consumer protection for the retail financial
products and services established by the EU regulatory framework is technology
neutral and should be also applied to innovative ones using new technologies,
although adapted to the features of these products and to the distribution models?
Yes
No
Don’t know / no opinion / not relevant
Question 5.1
Please explain your reasoning on your answer to question 5, and where relevant
explain the necessary adaptations:
The ECB expresses no views on this question.
33
“Final report of the Expert Group on Regulatory Obstacles to Financial Innovation: 30 recommendations
on regulation, innovation and finance”, European Commission, 13 December 2019.
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Identifying areas where the financial services regulatory framework
may need to be adapted
Question 6
In your opinion, is the use for financial services of the new technologies listed below
limited due to obstacles stemming from the EU financial services regulatory
framework or other EU level regulatory requirements that also apply to financial
services providers?
Please rate each proposal from 1 to 5:
1
(irrelevant)
2
(rather not
relevant)
3
(neutral)
4
(rather
relevant)
5
(fully
relevant) N.A.
Distributed Ledger
Technology (except crypto-
assets)
X
Cloud computing
X
Artificial Intelligence/
Machine learning
X
Internet Of Things (IoT)
Biometrics
Quantum computing
Other
If you see other technologies whose use would be limited in the financial services due
to obstacles stemming from the EU financial services legislative framework, please
specify and explain:
In terms of other technologies, the ECB believes that application programming
interfaces (APIs) provide advantages for banks, including potential improvements to
efficiency, data standardisation, privacy, as well as data protection, in comparison to
other techniques (e.g. screen scraping). Banks have been internally relying on APIs
for many years. They traditionally maintain multiple systems to run their operations
and APIs enable the communication among these. Recently, the focus has turned to
external APIs. The use of APIs, in the context of PSD2 but also beyond, is increasing
in banks, especially those that intend to monetise their APIs via different models. To
achieve interoperability of external APIs, the ECB considers that a clear and
consistent regulatory framework for APIs, as well as their standardisation, where
possible, would be beneficial. In this context, further discussions also including
relevant stakeholders may be necessary.
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Question 6.1
Please explain your answer to question 6, specify the specific provisions and
legislation you are referring to and indicate your views on how it should be addressed:
Regarding DLT (except crypto-assets), the ECB believes that the existence of
harmonised definitions, legal clarity (e.g. on the governance of the platform and
applicable law) and standardisation, where possible, would be beneficial for the
expansion of DLTs in banking solutions and FMIs.
At the beginning of 2019, the EBA published a guideline on outsourcing
arrangements.
34
This guideline also integrated the 2017 EBA recommendations on
outsourcing to cloud service providers. The ECB has actively contributed to the
elaboration of this guideline. It contains no significant restrictions on the usage of
cloud services. Nevertheless, further action could be taken to strengthen the legal
certainty for industry participants on the use of cloud computing in the financial sector
and its effective supervision, in particular in the area of standardisation of services and
contracts, and requirements in relation to the location of data, as well as the providers’
facilities.
34
“Final Report on EBA Guidelines on outsourcing arrangements”, European Banking Authority,
25 February 2019.
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Question 7
Building on your experience, what are the best ways (regulatory and non-regulatory
measures) for the EU to support the uptake of nascent technologies and business
models relying on them while also mitigating the risks they may pose?
Please rate each proposal from 1 to 5:
1
(irrelevant)
2
(rather
not
relevant)
3
(neutral)
4
(rather
relevant)
5
(fully
relevant) N.A.
Setting up dedicated
observatories to monitor
technological and market trends
(e.g. EU Block chain Observatory
& Forum; Platform Observatory)
X
Funding experimentation on
certain applications of new
technologies in finance (e.g. block
chain use cases)
Promoting supervisory innovation
hubs and sandboxes
X
Supporting industry codes of
conduct on certain applications of
new technologies in finance
Enhancing legal clarity through
guidance at EU level for specific
technologies and/or use cases
X
Creating bespoke EU regimes
adapted to nascent markets,
possibly on a temporary basis
X
Other
Please specify what are the other ways the EU could support the uptake of nascent
technologies and business models relying on them while also mitigating the risks they
may pose:
While the ECB sees some benefits in bespoke regimes for nascent technologies (such
as the use of blockchain), there are also risks of their leading to a complex and
possibly inconsistent regulatory structure and provisions in different EU Member
States. Similarly, the creation of regimes applicable on a temporary basis may be
relevant for nascent markets, but could also increase regulatory uncertainty in relation
to provisions related to nascent markets (e.g. new innovative players in the field of
lending, wealth management). Therefore, enhancement of the European regulatory
framework may be necessary to ensure a level playing field.
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Assessing the need for adapting the existing prudential frameworks
to the new financial ecosystem, also to ensure a level playing field
Question 8
In which financial services do you expect technology companies which have their main
business outside the financial sector (individually or collectively) to gain significant
market share in the EU in the five upcoming years?
Please rate each proposal from 1 to 5:
1
(very low
market
share
below 1%)
2
(low
market
share
3
(neutral)
4
(significant
market
share)
5
(very
significant
market
share above
25%)
N.A.
Intra-European retail payments
Intra-European wholesale
payments
Consumer credit provision to
households with risk taking
Consumer credit distribution to
households with partner
institution(s)
Mortgage credit provision to
households with risk taking
Mortgage credit distribution to
households with partner
institution(s)
Credit provision to SMEs with risk
taking
Credit distribution to SMEs with
partner institution(s)
Credit provision to large
corporates with risk taking
Syndicated lending services with
risk taking
Risk-taking activities in Life
insurance products
Risk-taking activities in Non-life
insurance products
Risk-taking activities in pension
products
Intermediation / Distribution of
life insurance products
Intermediation / Distribution of
non- life insurance products
Intermediation / Distribution of
pension products
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Other insurance related activities,
e.g. claims management
Re-insurance services
Investment products distribution
Asset management
Others
Please specify in which other financial services you expect technology companies to
gain significant market share in the EU in the five upcoming years:
It should be examined to what extent fintech ecosystem companies and financial
services platforms might start gaining additional market share in the next years as a
result of their offering and a combination of various aforementioned financial services.
Question 8.1
Please explain your answer to question 8 and, if necessary, describe how you expect
technology companies to enter and advance in the various financial services markets
in the EU Member States:
Technology companies could deploy various strategies to become more active in the
payments market. They could build on existing payment infrastructure, cooperate with
existing PSPs, or choose to offer their own payment solutions on a newly developed
proprietary or third-party infrastructure. In the latter case, new solutions may also have
a negative impact on market integration. Technology companies could also enter new
markets by taking over successful start-up companies. In Europe, for the most part,
technology companies offer technical services to banks and PSPs both at the front
end (e.g. electronic wallets) and back end (e.g. cloud services) of the payments value
chain. The ECB believes that technology companies could pursue a more prominent
role in payment service provision. Large technology companies with cross-border user
bases may develop new global payment schemes/arrangements by using new and
innovative technologies/assets. Technology companies’ strategies could be potentially
broader than the provision of new payment instruments/arrangements (e.g. extending
to eID solutions). However, at this stage, it is not possible to estimate these
companies’ market share in five years’ time. Ultimately, the technology companies’
expansion in financial services would depend on the underlying business model of the
technology company.
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Question 9
Do you see specific financial services areas where the principle of “same activity
creating the same risks should be regulated in the same way” is not respected?
Yes
No
Don’t know / no opinion / not relevant
Question 9.1
Please explain your answer to question 9 and provide examples if needed:
In relation to the banking sector:
Any entity in the euro area that accepts deposits and offers loans to the public is
supervised as a credit institution and hence must adhere to the applicable regulation.
Only the ECB can grant licences to such institutions.
35
The entrance of service providers such as technology companies into the financial
services sector, more specifically big tech companies, has raised concerns that the
principle of “same activity, same risks, same supervision and regulation” could be
undermined. Should big tech companies decide to start providing financial services on
a large scale, and especially in the retail market, this could significantly transform the
financial landscape. Big tech companies provide services to a large customer base
and can leverage on economies of scale and their presence on multiple markets to
offer financial services to both consumers and merchants, as well as gaining access to
large amounts of user data that can be exploited for credit rating purposes and
targeted marketing. At the same time, these service providers could deliberately
choose their product characteristics to circumvent the existing regulation, potentially
undermining the applicability of the “same activity, same risks, same supervision and
regulation” principle.
36
At the current juncture, in the euro area at least, the ECB witnesses that big tech
companies are partnering with banks or providing ancillary services. Examples of the
former include Google Pay and Apple Pay, services which are being rolled out across
the EU with benefits for the participating banks, but also for the big tech companies
that would not need to meet the regulatory requirements themselves, and of course for
consumers. Some big tech companies are also key providers of cloud services for
banks.
Nevertheless, as mentioned elsewhere in the ECB’s answers (see, for example,
Question 10 and Question 12), it is important that we remain vigilant in this respect
35
In line with its mandate in Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific
tasks on the European Central Bank concerning policies relating to the prudential supervision of credit
institutions (OJ L 287, 29.10.2013, p. 63).
36
See also the speech entitled “A binary future? How digitalisation might change banking” by Andrea Enria,
Chair of the Supervisory Board of the ECB, at the banking seminar organised by De Nederlandsche
Bank, Amsterdam, 11 March 2019.
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and are prepared at an EU level to consider adjusting the regulatory perimeter if and
when big tech companies should increasingly offer banking services, such as lending
to consumers and/or small and medium-sized enterprises (SMEs), to ensure that the
risks related to these services are adequately addressed (including concentration
risks), and in a similar manner across the various institutions providing those services,
as well as in the various European jurisdictions.
Question 10
Which prudential and conduct risks do you expect to change with technology
companies gaining significant market share in financial services in the EU in the five
upcoming years?
Please rate each proposal from 1 to 5:
1
(significant
reduction
in risks)
2
(reduction
in risks)
3
(neutral)
4
(increase
in risks)
5
(significant
increase in
risks) N.A.
Liquidity risk in interbank
market (e.g. increased volatility)
Liquidity risk for particular
credit institutions
Liquidity risk for asset
management companies
Credit risk: household lending
Credit risk: SME lending
Credit risk: corporate lending
Pro-cyclical credit provision
Concentration risk for funds
collected and invested (e.g. lack
of diversification)
Concentration risk for holders
of funds (e.g. large deposits or
investments held in a bank or
fund)
Undertaken insurance risk in
life insurance
Undertaken insurance risk in
non-life insurance
Operational risks for
technology companies and
platforms
X
Operational risk for incumbent
financial service providers
X
Systemic risks (e.g. technology
companies and platforms
become too big, too
interconnected to fail)
X
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Please specify which other prudential and conduct risk(s) you expect to change with
technology companies gaining significant market share in financial services in the EU
in the five upcoming years:
The ECB does not provide any views on this matter.
Question 10.1
Please explain your answer to question 10 and, if necessary, please describe how the
risks would emerge, decrease or increase with the higher activity of technology
companies in financial services and which market participants would face these
increased risks:
The ECB notes that consideration should be given to the possible entrance of big tech
companies into the financial services market. They can draw upon the vast amounts of
data from their wide customer base and combine this with their extensive use of
innovative technologies to better tailor their product offering. Big tech companies have
the potential to quickly gain a significant market share, which could lead to significant
concentration risks and, in the event of operational failures and targeted cyberattacks,
could have a systemic impact on the financial system as a whole, thus increasing
financial stability risks.
Incumbent financial institutions are reacting to this changing environment by
transforming their business models. This could imply, for instance, transforming the
bank itself into a fully fledged digital institution, establishing a stand-alone digital bank
or partnering with non-bank fintech or big tech companies to deliver certain products,
creating ecosystems where financial institutions, fintech start-ups and service
providers cooperate. In relation to its oversight and supervisory mandates, the ECB
does not attempt to steer the market in one direction or the other. Our aim is to
maintain a level playing field in financial services. Our guiding principle is “same
activity, same risks, same supervision and regulation”.
37
Therefore, the evolving
business models and the application of new technologies are being monitored with
regard to the related risks and banks’ risk management processes.
The security and operational resilience of the financial sector can be affected in a
number of ways by the increased use of new technologies. Overall, it can be expected
that the increased presence of technology companies will create more operational
complexity and add intermediaries in the financial sector, also increasing third-party
37
See also the speech entitled “A binary future? How digitalisation might change banking” by Andrea Enria,
Chair of the Supervisory Board of the ECB, at the banking seminar organised by De Nederlandsche
Bank, Amsterdam, 11 March 2019.
Money-laundering and
terrorism financing risk
Other
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dependencies. This may raise systemic risk, as operational problems that arise in one
country may spread to other countries. A complicating factor in this respect may be
that the presence of such companies in many countries may reduce the insight of
national overseers and prudential supervisors into the type and scale of financial
activities taking place within their jurisdictions. As the pace of technological innovation
increases, the financial sector will see more often the introduction of innovative
technology which has not been intensively market-tested and is therefore inherently
more risky from an operational point of view. At the same time, the accelerated
adoption of new technologies could also enhance the resiliency of the sector. For
example, the use of cloud services could, under certain conditions, improve
operational systems’ availability, scalability and resilience compared with what can be
achieved with on-premises data centres.
A competitive attitude of market players should not result in a deterioration of business
operating conditions which could increase operational risks due to underinvestment in
IT security.
The reliance on external technology providers increases the surface of attack, thereby
potentially facilitating the propagation of disruptions. However, some specialised
technology companies have a strong interest in ensuring a high level of cyber and
operational resilience, as the provision of technology services is their core business.
Lastly, when EU financial service providers increasingly rely on (critical) services
offered to them by non-EU technology firms, EU sovereignty with regard to those
services (e.g. the ability to regulate and supervise those non-EU service providers)
decreases. The same applies when non-EU technology firms replace EU financial
service providers for services to EU citizens and businesses (for example, when
non-EU big tech companies’ market share in offering retail payment services
increases).
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Question 11
Which consumer risks do you expect to change when technology companies gain
significant market share in financial services in the EU in the five upcoming years?
Please rate each proposal from 1 to 5:
1
(significant
reduction in
risks)
2
(reduction
in risks)
3
(neutral)
4
(increase
in risks)
5
(significant
increase in
risks N.A.
Default risk for funds
held in non-banks and
not protected by Deposit
Guarantee Scheme
Liquidity risk
Misselling of insurance
products
Misselling of investment
products
Misselling of credit
products
Misselling of pension
products
Inadequate provision of
information
Inadequate complaint
and redress process and
management
Use/abuse of personal
data for financial
commercial purposes
Discrimination e.g.
based on profiles
Operational risk e.g.
interrupted service, loss
of data
Other
Please specify which other consumer risk(s) you expect to change when technology
companies gain significant market share in financial services in the EU in the five
upcoming years:
The ECB refrains from providing a response in relation to consumer risks.
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Question 11.1
If necessary, please describe how the risks would emerge, decrease or increase with
the higher activity of technology companies in financial services and which market
participants would face these increased risks:
The ECB does not provide an answer to this question.
Question 12
Do you consider that any of the developments referred to in the questions 8 to 11
require adjusting the regulatory approach in the EU (for example by moving to more
activity-based regulation, extending the regulatory perimeter to certain entities,
adjusting certain parts of the EU single rulebook)?
Yes
No
Don’t know / no opinion / not relevant
Question 12.1
Please explain your answer to question 12, elaborating on specific areas and
providing specific examples:
Technology companies have entered into the financial services sector, thereby
allowing them to remain outside the remit of the financial regulatory regime for some
activities, while in the case of regulated activities the required authorisation has to be
obtained, or the service/product has to be offered in a partnership with an entity having
the required authorisation (i.e. a banking licence). However, in the ECB’s view, the
prospect of technology companies increasing their footprint in the financial services
sector and using increasingly sophisticated ways to provide these services could
warrant the need to extend the regulatory perimeter and to explore the possibility of
complementing the current entity-based regime with an activity-based approach.
From the ECB’s perspective, an important financial stability concern relates to the
increasing reliance of financial institutions on big tech companies for certain technical
services supporting the provision of financial services such as cloud computing (see
also Question 8.1). Such services are typically provided by a handful of big tech
companies, almost all of which are located outside the EU, posing challenges to the
EU regulators in terms of their reach and effective intervention. Moreover, big tech
companies’ service provision is not limited to the financial sector. The ECB believes
that these considerations underscore the need for closer cooperation, coordination
and dialogue at both global and cross-sectoral levels. They may also call for some
institutional arrangements to ensure such cross-border and cross-sectoral
coordination.
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Enhance multi-disciplinary cooperation between authorities
Question 13
Building on your experience, what are the main challenges authorities are facing while
supervising innovative/digital players in finance and how should they be addressed?
Please explain your reasoning and provide examples for each sector you are referring
to (e.g. banking, insurance, pension, capital markets):
In relation to the banking sector:
The ECB follows a technology-neutral approach to banking supervision, whereby any
licensed credit institution in the euro area will be supervised according to the same
high standards, proportionate to its individual risk profile. Many banks in the euro area,
including both incumbent institutions as well as market entrants, are using fintech.
Based on the licensing of banks which use fintech, as well as the ongoing supervision
of banks in the euro area (both significant and less significant institutions), there are
recurring issues with regard to supervision, touching on, among others, the following
topics:
• increased use of cloud service providers, leading to concentration (both
idiosyncratic and systemic) among a few providers including big tech companies;
• use of AI for a range of back-office functions and increasingly also front-office
functions;
• move towards an open banking/beyond banking model;
• use of DLT for certain activities.
As mentioned in our answer to Question 1, the ECB is continuously adapting its
supervisory approach to banks’ use of innovative technologies, leveraging on
knowledge gained through its own application of advanced technologies, industry
dialogues and exchanges with other authorities. The ECB’s objective is to promote a
common understanding of fintech-related risks and ensure that they are assessed in a
consistent manner across the euro area.
Question 14
According to you, which initiatives could be put in place at EU level to enhance this
multi-disciplinary cooperation between authorities?
Please explain your reasoning and provide examples if needed:
The ECB supports and is proactively engaged in EU-wide initiatives aimed at
enhancing cooperation between competent authorities and supporting mutual learning
among supervisors. These include for example the Commission’s FinTech Lab, the
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Horizon 2020 project and the European Forum of Innovation Facilitators (EFIF),
amongst others. In addition, the ECB works together with the NCAs to adapt its
supervisory approach within the SSM.
With specific reference to the EFIF, the ECB welcomes and supports the proposals of
the European Commission to further enhance this format and to incorporate dialogues
such as those previously organised under the auspices of DG-CONNECT (e.g. the
FinTech Lab).
As mentioned earlier in response to Question 12, the activities of big tech companies,
especially technical service provision to financial institutions, require closer
cooperation and coordination at both global and cross-sectoral levels. They may also
call for some institutional arrangements to ensure such cross-border and
cross-sectoral coordination.
The ECB supports in particular the development of an EU-level enhanced and
dedicated oversight framework, which would be tailor-made for critical third-party
providers and would be based on binding tools, such as direct intervention and
sanctioning powers by the relevant competent authorities. The ECB supports the idea
of oversight of critical third-party providers being performed by a dedicated oversight
function, which could leverage on and complement the existing Eurosystem oversight
framework for critical service providers of FMIs. We are of the opinion that any
possible new framework should also focus on the issues related to “chain outsourcing”
(i.e. fourth-party service providers).
Cross-border activities of financial service providers require furthermore enhanced
and proactive cooperation and exchange of information based on adequate technical
tools among prudential supervisors, as well as between prudential supervisors and
overseers of payment systems and payment schemes in the EU.
2 Removing fragmentation in the single market for digital
financial services
Question 15
According to you, and in addition to the issues addressed in questions 16 to 25 below,
do you see other obstacles to a Single Market for digital financial services and how
should they be addressed?
The ECB broadly agrees with the European Commission’s assessment of the
obstacles to a Single Market for digital finance. Please refer also to the ECB’s
response to the retail payments consultation (in particular, the need to facilitate further
the provision of instant/faster payments both for domestic and cross-border payments
across the EU).
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Facilitating the use of digital financial identities throughout the EU
Question 16. What should be done at EU level to facilitate interoperable cross- border
solutions for digital on- boarding?
Please rate each proposal from 1 to 5:
1
(irrelevant)
2
(rather
not
relevant)
3
(neutral)
4
(rather
relevant)
5
(fully
relevant) N.A.
Harmonise rules governing
customer due diligence
requirements in the Anti-Money
Laundering legislation
Harmonise rules governing the
acceptable use of remote
identification technologies and
services in the Anti-Money
Laundering legislation
Broaden access for obliged
entities to publicly held
information (public databases and
registers) to enable verification of
customer identities
Provide further guidance or
standards in support of the
customer due diligence process
(e.g. detailed ID elements, eligible
trusted sources; risk assessment
of remote identification
technologies)
Facilitate the development of
digital on-boarding processes,
which build on the e-IDAS
Regulation
Facilitate cooperation between
public authorities and private
sector digital identity solution
providers
Integrate KYC attributes into e-
IDAS in order to enable on-
boarding through trusted digital
identities
Other
X
Please specify what else should be done at EU level to facilitate interoperable
cross-border solutions for digital on-boarding:
The ECB has addressed digital identities and the need for action at EU level to
promote the development of cross-border compatible digital identity solutions (for
payment authentication purposes) in the parallel European Commission public
consultation on a retail payments strategy. In its response, the ECB notes that
changes to eIDAS (electronic identification, authentication and trust services) are
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needed to: (i) enable the use of national eID/eSignature solutions by the private
sector; (ii) facilitate PSPs’ cross-border acceptance of eID/eSignature solutions; and
(iii) enable PSPs to use a single EU eIDAS-compliant solution for remote onboarding,
servicing and payment authentication at any PSP in Europe. Furthermore, in order for
the EU to reap the full benefits of digitalisation and to facilitate European solutions, it is
important to ensure that national laws facilitate and/or give equal treatment to
paper-based and digital identities, signatures and documents/contracts.
Customer due diligence is not addressed in this response, as the topic falls outside of
the ECB’s mandate.
Question 17
What should be done at EU level to facilitate reliance by financial institutions on digital
identities gathered by third parties (including by other financial institutions) and data
re-use/portability?
Please rate each proposal from 1 to 5:
1
(irrelevant)
2
(rather
not
relevant)
3
(neutral)
4
(rather
relevant)
5
(fully
relevant) N.A.
Make the rules on third party
reliance in the Anti-Money
Laundering legislation more
specific
Provide further guidance relating
to reliance on third parties for
carrying out identification and
verification through digital means,
including on issues relating to
liability
Promote re-use of digital identities
collected for customer due
diligence purposes in accordance
with data protection rules
Promote a universally accepted
public electronic identity
Define the provision of digital
identities as a new private sector
trust service under the
supervisory regime of the eIDAS
Regulation
Other
X
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Please specify what else should be done at EU level to facilitate reliance by financial
institutions on digital identities gathered by third parties (including by other financial
institutions) and data re-use/portability:
In addition to what has been said in response to Question 16 with respect to eIDAS,
one key prerequisite for the wide reliance on digital identities is that such identities rely
on a unique, standardised and harmonised means of entity identification, based on
internationally recognised global standards. In that context, the LEI (ISO 17442) is the
global standard and should be further leveraged and promoted. The introduction of
overlapping/competing standards should be avoided, as this would lead to
inefficiencies in the identification process, as well as in subsequent analysis and
sharing processes.
Question 18
Should one consider going beyond customer identification and develop Digital
Financial Identities to facilitate switching and easier access for customers to specific
financial services?
Should such Digital Financial Identities be usable and recognised throughout the EU?
Which data, where appropriate and in accordance with data protection rules, should
be part of such a Digital Financial Identity, in addition to the data already required in
the context of the anti-money laundering measures (e.g. data for suitability test for
investment services; data for creditworthiness assessment; other data?
Please explain your reasoning and also provide examples for each case you would
find relevant.
The ECB has not provided a response on this topic.
Question 19
Would a further increased mandatory use of identifiers such as Legal Entity Identifier
(LEI), Unique Transaction Identifier (UTI) and Unique Product Identifier (UPI) facilitate
digital and/or automated processes in financial services?
Yes
No
Don’t know / no opinion / not relevant
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If yes, in which framework(s) is there the biggest potential for efficiency gains?
The ECB fully endorses the mandatory use of different identifiers based on
internationally recognised global standards, including LEIs, UTIs and UPIs, which are
crucial to reap the benefits of and speed up the comprehensive digitalisation and
automation of financial services processes. Amongst other benefits, the ECB
acknowledges that the identifiers enable data interoperability and the provision of
standardised information, as well as facilitating data processing, financial decisions
and automation. All of the aspects of the aforementioned framework, in relation to
providing rules and guidance at an EU level, are relevant and justified from the ECB’s
perspective.
Turning to data related to fintech from a statistical perspective, collaboration and
coordination among the EU authorities could be envisaged with respect to a fintech
monitoring framework. Currently, information about fintech entities is scarce and not
harmonised. Moreover, there is no agreed statistical definition of fintech. Such a
monitoring framework would make it possible to keep track of the progress in
achieving the digital strategy goals, as well as identify areas which would require
further statistical support.
38
Making it easier for firms to carry out technology pilots and scale up
across the Single Market
Question 20
In your opinion (and where applicable, based on your experience), what is the main
benefit of a supervisor implementing (a) an innovation hub or (b) a regulatory sandbox
as defined above?
The ECB observes that providing a space for an open dialogue on banks’ innovative
applications is a key feature and benefit of national innovation hubs and regulatory
sandboxes, as this may encourage banks (and other financial entities) to launch
innovative solutions. A regulatory sandbox enables entities to experiment with
innovative financial products or services in a defined space and time period, while
containing the consequences of a possible failure.
In addition, such schemes could enable supervisors to monitor banks’ innovation
activities, in order to enhance their understanding of related risks relevant for the
banking sector, as well as the wider financial sector (depending on each supervisor’s
mandate), and ultimately foster a level playing field. At present, the establishment of a
sandbox at EU level is not currently foreseen in European legislation (including in the
CRR/CRD).
38
“IFC Report on central banks and fintech data issues”, Bank for International Settlements, February
2020.
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Within the euro area, banks’ innovation strategies are being assessed and discussed
in the context of the EU bank licensing regime and ongoing supervisory dialogue,
which allows for a close discussion on banks’ innovative efforts. The ECB also
pursues a market intelligence strategy, which consists of dialogue with market
participants and other supervisory authorities, in order to encourage information and
knowledge sharing and enhance understanding of the use of innovative technologies
by banks in the euro area.
Therefore, the ECB welcomes the European Commission’s initiatives to address
cross-border aspects when European entities operate in such schemes, in order to
ensure a harmonised approach and foster a level playing field, also for the potential
testing of new technologies in a controlled environment.
In this context, the ECB has also incorporated the use of supervisory technologies as
a core element into its strategic vision for banking supervision. To leverage the full
potential of new technologies, the ECB has therefore created a dedicated supervisory
technology (suptech) hub and introduced an ambitious digitalisation roadmap outlining
a set of actions over a three-year horizon.
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Question 21
In your opinion, how could the relevant EU authorities enhance coordination among
different schemes in the EU?
Please rate each proposal from 1 to 5:
1
(irrelevant)
2
(rather
not
relevant)
3
(neutral)
4
(rather
relevant)
5
(fully
relevant) N.A.
Promote convergence among
national authorities in setting up
innovation hubs and sandboxes,
through additional best practices
or guidelines
X
Facilitate the possibility for firms
to test new products and activities
for marketing in several Member
States (“cross border testing”)
X
Raise awareness among industry
stakeholders
X
Ensure closer coordination with
authorities beyond the financial
sector (e.g. data and consumer
protection authorities)
X
Promote the establishment of
innovation hubs or sandboxes
with a specific focus (e.g. a
specific technology like Block
chain or a specific purpose like
sustainable finance)
X
Other
Please specify how else could the relevant EU authorities enhance coordination
among different schemes in the EU:
The establishment of a sandbox at EU level is not currently foreseen in European
legislation and ultimately the setting-up of an EU-wide sandbox would be for the
regulators to decide on. Such an initiative, as well as national initiatives, would need to
be in line with the European regulatory framework and the division of competences
contained therein, as well as the ECB’s mandate for licensing credit institutions and
direct supervision of significant institutions.
39
Further coordination and cooperation
may be beneficial to ensure alignment between national initiatives and address
cross-border issues.
39
See also the speech entitled “Innovation and digitalisation in payment services” by Yves Mersch, Member
of the Executive Board of the ECB, at the Second Annual Conference on “Fintech and Digital Innovation:
Regulation at the European level and beyond”, Brussels, 27 February 2018.
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Question 21.1
If necessary, please explain your reasoning and also provide examples for each case
you would find relevant:
The ECB in its supervisory function is also monitoring the various schemes
implemented throughout the euro area, and discussing their relevance from a banking
supervision perspective. We will also continue contributing to the discussions taking
place at an EU level.
Question 22
In the EU, regulated financial services providers can scale up across the Single
Market thanks to adequate licenses and passporting rights.
Do you see the need to extend the existing EU licenses passporting rights to further
areas (e.g. lending) in order to support the uptake of digital finance in the EU?
According to the current regulatory framework, the entities that are authorised to
provide banking or payment services can passport all or some of these services
(e.g. lending) to clients in other Member States. The question as to which activities,
innovative or not, should be subject to authorisation in a Member State, consequently
qualifying for possible passporting to other Member States, is rather a question of
regulatory perimeter.
With respect to the use of passporting to scale up activities across the Member States,
the ECB supports the EBA’s recommendation, outlined in its report on potential
impediments to the cross-border provision of banking and payment services
40
, that the
European Commission should provide an update of its interpretative communications
on the cross-border provision of services. It is especially relevant for digital finance, in
order to receive more clarity on when a digital activity is to be regarded as a
cross-border provision of services and in which cases it should then be classified
under the freedom to provide services or the freedom of establishment.
In its interpretative communication (97/C 209/04), the European Commission had also
addressed the use of intermediaries for banking activities in another Member State.
Currently, only some Member States (e.g. Spain
41
) have defined a framework for
intermediaries from other Member States to provide cross-border banking or financial
services in their country and the respective notification process. The ECB is of the
view that additional clarity could be helpful in this area. This clarity should also foster
stronger relationships between entities which are passporting and the NCA of a target
Member State.
40
“Report on potential impediments to the cross-border provision of banking and payment services”,
European Banking Authority, 29 October 2019.
41
Royal Decree 309/2019.
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Ensuring fair and open access to relevant technical infrastructures
for all financial service providers that wish to offer their services
across the Single Market
(It should be noted that this topic is also included, from the payment perspective, in the
Retail Payments consultation)
Question 23
In your opinion, are EU level initiatives needed to avoid fragmentation in the Single
Market caused by diverging national measures on ensuring non-discriminatory access
to relevant technical infrastructures supporting financial services?
Please elaborate on the types of financial services and technical infrastructures where
this would be relevant and on the type of potential EU initiatives you would consider
relevant and helpful:
From a payments perspective, access to technical infrastructures was covered in the
ESCB response to the retail payments consultation. In its response, the ESCB
supports action by the EU regulator to ensure open access to key technical
infrastructure services on the basis of transparent, objective and non-discriminatory
criteria that take into account security standards, oversight and supervisory
requirements.
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Empowering and protecting EU consumers and investors using
digital finance across the Single Market
Question 24
In your opinion, what should be done at EU level to achieve improved financial
education and literacy in the digital context?
Please rate each proposal from 1 to 5:
1
(irrelevant)
2
(rather
not
relevant)
3
(neutral)
4
(rather
relevant)
5
(fully
relevant) N.A.
Ensure more affordable access at
EU level to financial data for
consumers and retail investors
Encourage supervisors to set up
hubs focussed on guiding
consumers in the digital world
Organise pan-European
campaigns and advisory hubs
focusing on digitalisation to raise
awareness among consumers
Collect best practices
Promote digital financial services
to address financial inclusion
Introduce rules related to financial
education comparable to Article 6
of the Mortgage Credit Directive,
with a stronger focus on
digitalisation, in other EU financial
regulation proposals
Other
Please specify what else should be done at EU level to achieve improved financial
education and literacy in the digital context:
The ECB refrains from providing a response in relation to consumer financial
education.
Question 25
If you consider that initiatives aiming to enhance financial education and literacy are
insufficient to protect consumers in the digital context, which additional measures
would you recommend?
The ECB refrains from providing a response in relation to consumer financial
education.
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3 Promote a well-regulated data-driven financial sector
Question 26
In the recent communication "A European strategy for data", the Commission is
proposing measures aiming to make more data available for use in the economy and
society, while keeping those who generate the data in control.
According to you, and in addition to the issues addressed in questions 27 to 46 below,
do you see other measures needed to promote a well-regulated data driven financial
sector in the EU and to further develop a common European data space for finance?
In addition to the issues addressed in Questions 27 to 46, the ECB considers that
some dedicated tools and methods should be developed so that data obfuscation
allows data usage without compromising confidentiality.
Facilitating the access to publicly available data in finance
Question 27
Considering the potential that the use of publicly available data brings in finance, in
which areas would you see the need to facilitate integrated access to these data in the
EU?
Please rate each proposal from 1 to 5:
1
(irrelevant)
2
(rather not
relevant)
3
(neutral)
4
(rather
relevant)
5
(fully
relevant) N.A.
Financial reporting data from
listed companies
X
Non-financial reporting data from
listed companies
X
SME data
X
Prudential disclosure stemming
from financial services legislation
X
Securities market disclosure
X
Disclosure regarding retail
investment products
X
Other
X
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Please specify in which other area(s) you would see the need to facilitate integrated
access to these data in the EU:
In the ECB’s view, public access to financial data should focus on two areas: financial
reporting data and banking supervision quantitative disclosure requirements
(so-called Pillar 3 of the Basel framework). At present, the EBA is integrating
supervisory reporting and quantitative Pillar 3 disclosure requirements for financial
institutions into a single reporting framework, in which the data disclosed under Pillar 3
will form a subset of the data subject to supervisory reporting. This integration is a
precondition for the EBA to develop and maintain a public data hub comprising
information disclosed in accordance with the quantitative Pillar 3 disclosure
requirements and extracted from supervisory data. Financial reporting data could be
easily added; in fact, this information is already collected by supervisors, albeit within a
different consolidation scope.
Credit institutions would benefit from such a framework, since they would only report
the respective information once, and prudential supervisors as well as public data
users would benefit from having easier access to pertinent data. Moreover,
establishing a framework for a central data repository at the EBA could significantly
improve the quality of supervisory data and make the EBA transparency exercises
redundant. It would also more broadly foster the integration of the EU banking sector
by facilitating market participants’ access to information disclosed under Pillar 3 of the
Basel framework.
This approach is currently followed by the US authorities, where a federal agency (the
Federal Financial Institutions Examination Council ‒ FFIEC) collects and discloses
supervisory data on behalf of banks. This implies cost savings for banks as their
Pillar 3 disclosure obligations are limited to the qualitative part. A similar central data
repository at EU level would disclose Pillar 3 data in accordance with requirements for
financial institutions (on a quarterly, semi-annual or annual basis), in order to ultimately
put the European Union at the same level as the United States in terms of public data
availability.
The EBA may require a legal mandate to make available public data as part of a
central repository without the explicit consent of the financial institutions to which
these data belong. This mandate should, however, be without prejudice to the power
of competent authorities to request additional ad hoc information from supervised
entities. Therefore, the ECB sees merit in further exploring the legal and practical
feasibility of establishing a central data repository at the EBA.
The integration of statistical, prudential and resolution data envisaged by
Article 430(c) of the CRR would facilitate the establishment of such a public repository.
Ideally, the data contained in the repository should be a subset of the information
available to authorities, in order to avoid duplicated data requests and to ensure
alignment between the two.
In addition to the above-mentioned priority areas, the ECB believes that further areas
could be explored, in particular environmental, social and governance (ESG)
reporting.
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In order to make the best use of alternative data sources, access to privately held data
(e.g. by social media firms) ‒ possibly via appropriate agreements with the private
sector ‒ needs to be organised in such a manner that public bodies, including central
banks, can gain access to the data in a sustainable manner, in particular for statistical
and analytical purposes.
Finally, the ECB sees merits in supporting the initiatives related to the Open Data
Directive
42
, e.g. high-value datasets or the EU Open Data Portal.
43
Question 28
In your opinion, what would be needed to make these data easily usable across the
EU?
Please rate each proposal from 1 to 5:
1
(irrelevant)
2
(rather
not
relevant)
3
(neutral)
4
(rather
relevant)
5
(fully
relevant) N.A.
Standardised (e.g. XML) and
machine-readable format
X
Further development of the
European Financial Transparency
Gateway, federating existing
public databases with a Single EU
access point
X
Application Programming
Interfaces to access databases
X
Public EU databases
X
Other
X
Please specify what else would be needed to make these data easily usable across
the EU:
The ECB believes that, in order to ensure data comparability for public users, there are
certain changes to the Pillar 3 disclosure framework that are necessary. These
changes are also required to fully integrate supervisory reporting with disclosure
requirements.
Firstly, since some Pillar 3 disclosure templates have flexible reporting formats, it is
important to expand the use of fixed reporting formats to the extent possible, in order
to improve data comparability and consistency. Banks would still be free to publish
additional disclosures to complement the information published in the fixed formats.
42
Directive (EU) 2019/1024 of the European Parliament and of the Council of 20 June 2019 on open data
and the re-use of public sector information (OJ L 172, 26.6.2019, p. 56).
43
See the EU Open Data Portal.
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Secondly, the materiality thresholds applied for Pillar 3 data disclosure should be the
same as for supervisory reporting, in order to ensure alignment between the two.
Thirdly, the revision policy applied to Pillar 3 data should be the same as for
supervisory reporting. Otherwise, in the event of data corrections, public users would
not be able to access updated information.
Fourthly, interoperability with other datasets would also be necessary.
Finally, exploring new technologies (e.g. DLT) in this context could be considered.
Consent-based access to personal data and data sharing in the
financial sector
Question 29
In your opinion, under what conditions would consumers favour sharing their data
relevant to financial services with other financial services providers in order to get
better offers for financial products and services?
Whilst consumer protection matters do not fall under the ECB’s remit, the ECB
acknowledges that consumers are the owners of their financial services-related data
and may be reluctant to share them with third parties, unless they receive some kind of
benefit, such as better financial conditions, access to specific services or information,
as can be seen from practices of big technology companies
44
. For this reason,
consumers may be in favour of sharing their financial data under several conditions.
Below are a few examples:
1. The data should be anonymised when possible. Access to the actual data of the
physical persons should be granted to other financial service providers or
non-financial service providers only when the consumer accepts the offer.
2. The data content and the individual data points should be made explicit and
consumers should be made aware of the use of their data. The consumer should
also be put in a position to select the data points he/she is willing to share.
3. The consumer should give his/her explicit consent to share the data with other
financial service providers or non-financial service providers. However, this
consent should not be given automatically.
4. The data should be used only by those with proper authorisation and should not
be shared with third parties for other purposes.
44
Big tech companies may already have access to large amounts of (financial) data stemming from their
business.
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Question 30
In your opinion, what could be the main benefits of implementing an open finance
policy in the EU?
Please rate each proposal from 1 to 5:
1
(irrelevant)
2
(rather
not
relevant)
3
(neutral)
4
(rather
relevant)
5
(fully
relevant) N.A.
More innovative and convenient
services for consumers/investors,
e.g. aggregators, comparison,
switching tools
X
Cheaper traditional services for
consumers/investors
X
Efficiencies for the industry by
making processes more
automated (e.g. suitability test for
investment services)
X
Business opportunities for new
entrants in the financial industry
X
New opportunities for incumbent
financial services firms, including
through partnerships with
innovative start-ups
X
Easier access to bigger sets of
data, hence facilitating
development of data dependent
services
X
Enhanced access to European
capital markets for retail investors
X
Enhanced access to credit for
small businesses
X
Other
X
If you see other benefits of implementing an open finance policy in the EU, please
specify and explain:
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Question 31
In your opinion, what could be the main risks of implementing an open finance policy in
the EU?
Please rate each proposal from 1 to 5:
1
(irrelevant)
2
(rather
not
relevant)
3
(neutral)
4
(rather
relevant)
5
(fully
relevant) N.A.
Privacy issues / security of
personal data
X
Financial exclusion
X
Poor consumer outcomes (e.g.
unfair pricing strategies)
X
Misuse of consumers’ financial
data
X
Business confidentiality issues
X
Increased cyber risks
X
Lack of level playing field in terms
of access to data across financial
sector activities
X
Other
X
If you see other risks of implementing an open finance policy in the EU, please specify
and explain:
Question 32
In your opinion, what safeguards would be necessary to mitigate these risks?
The ECB believes that the following safeguards would be relevant for the related risks:
1. Privacy issues/security of personal data: to mitigate this risk, the data should
be anonymised via an appropriate method, depending on the associated risks
and the intended use of the data. Access to the actual data of the physical
persons should be granted to other financial service providers only when the
consumer accepts the offer and the finality of the use of the data is ensured.
2. Financial exclusion and poor consumer outcomes: to mitigate these risks,
consumers should be put in a position to select the data points they are willing to
share. With the appropriate awareness, consumers could avoid sharing the most
sensitive data points, so that they cannot be used for adverse selection.
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3. Misuse of consumers’ financial data: to mitigate this risk, the rule should be
that data should be used only by authorised financial service providers and
should not be shared with third parties for other purposes without prior consent. A
code of conduct could also be introduced. Breaches of this rule should be fined.
An authority should be tasked with monitoring compliance.
4. Cyber risk: the ECB believes that an open finance policy could increase cyber
risk. Such a policy can only be implemented in the EU if and when the banking
sector has reached sufficient maturity in terms of cybersecurity risk management
and digital operational resilience.
Question 33
In your opinion, for which specific financial products would an open finance policy offer
more benefits and opportunities?
Please rate each proposal from 1 to 5:
1
(irrelevant)
2
(rather not
relevant)
3
(neutral)
4
(rather
relevant)
5
(fully
relevant) N.A.
Savings accounts
X
Consumer credit
X
SME credit
X
Mortgages
X
Retail investment products (e. g.
securities accounts)
X
Non-life insurance products (e.g.
motor, home…)
X
Life insurance products
X
Pension products
X
Other
X
If you see other financial products that would benefit of an open finance policy, please
specify and explain:
Question 33.1
Please explain your answer to question 33 and give examples for each category:
The following financial products could benefit from an open finance policy:
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• Savings accounts, retail investment products, pension products, life insurance
products: more competition may allow investors to gain better returns.
• Consumer credit, SME credit, mortgages: more competition may allow borrowers
to obtain better conditions. Access to more information could enable market
operators to perform more accurate and comprehensive credit scoring, enabling
a wider set of customers to benefit from lending services.
• Non-life insurance products: more competition may lead to a broader range of
products and more favourable conditions.
• Other: new financial products may be offered to satisfy latent needs of
consumers, investors and businesses.
However, the related risks should be adequately mitigated, including by changing
business models, which could also bring new risks. In this context, it should also be
ensured that customer data sharing with third-party providers meets clear legal
requirements and fulfils security standards.
Question 34
What specific data (personal and non-personal) would you find most relevant when
developing open finance services based on customer consent?
To what extent would you also consider relevant data generated by other services or
products (energy, retail, transport, social media, e-commerce, etc.) to the extent they
are relevant to financial services and customers consent to their use?
Please explain your reasoning and provide the example per sector:
In the ECB’s view, and in the context of customer consent to the use of their personal
and non-personal information, the usage of any (financial) service should not be
dependent on this consent and not giving that consent should not prevent consumers
from receiving the service.
With respect to other relevant data, based on some studies, access to social media
information does indeed enhance, for example, credit risk model performance.
45
Depending on the specific application, the usage of the data generated by other
services or products should be scientifically sound.
45
Gambacorta, L. et al., “How do machine learning and non-traditional data affect credit scoring? New
evidence from a Chinese fintech firm”, BIS Working Paper No 834, Bank for International Settlements,
December 2019.
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Question 35
Which elements should be considered to implement an open finance policy?
Please rate each proposal from 1 to 5:
1
(irrelevant)
2
(rather
not
relevant)
3
(neutral)
4
(rather
relevant)
5
(fully
relevant) N.A.
Standardisation of data, data
formats
X
Clarity on the entities covered,
including potential thresholds
X
Clarity on the way data can be
technically accessed including
whether data is shared in real- time
(e.g. standardised APIs)
X
Clarity on how to ensure full
compliance with GDPR and e-
Privacy Directive requirements
and need to ensure that data
subjects remain in full control of
their personal data
X
Clarity on the terms and
conditions under which data can
be shared between financial
services providers (e. g. fees)
X
Interoperability across sectors
X
Clarity on the way data shared will
be used
X
Introduction of mandatory data
sharing beyond PSD2 in the
framework of EU regulatory regime
X
If mandatory data sharing is
considered, making data available
free of cost for the recipient
X
Other
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Please specify what other element(s) should be considered to implement an open
finance policy:
Supporting the uptake of Artificial intelligence in finance
Question 36
Do you/does your firm already deploy AI based services in a production environment
in the EU?
Yes
No
Don’t know / no opinion / not relevant
Question 36.1
If you/your firm do/does already deploy AI based services in a production environment
in the EU, please specify for which applications?
The ECB has refrained from answering this question due to its relevance from an
industry perspective (rather than supervisory authority perspective).
Question 37
Do you encounter any policy or regulatory issues with your use of AI?
Have you refrained from putting AI based services in production as a result of
regulatory requirements or due to legal uncertainty?
From the ECB’s perspective, data protection issues can be encountered when working
with and implementing AI-based tools. For instance, when contracting external
companies, data cannot always be shared with them. This can have an impact on the
data quality as, without providing enough domain-specific data for retraining/testing
purposes, AI models can become less accurate. As AI models cannot always be fully
developed in house because of limited resources (e.g. AI-based natural language
processing (NLP) models developed by big tech companies are superior in quality and
performance), this can affect the use of AI. In this context, the use of AI-based services
when sharing data with third parties may also give rise to legal as well as reputational
risks.
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Question 38
In your opinion, what are the most promising areas for AI- applications in the financial
sector in the medium term and what are the main benefits that these AI-applications
can bring in the financial sector to consumers and firms?
In the ECB’s view, AI applications could be applied by banks in many areas of their
operations, both in the back office and in customer-facing services.
Promising areas include activities related to assessing large numbers of granular
transactions, reviewing large amounts of structured/unstructured corpora or engaging
in highly repetitive tasks/processes (e.g. anti-money laundering/combating the
financing of terrorism (AML/CFT), KYC, data quality, pattern or rare case recognition).
AI can also help banks to make better use of the vast amounts of data they have,
helping them to tailor their products to customers. Through our work in the ECB,
including interactions with banks, we have identified two key customer-facing areas
where banks can increasingly apply AI-based solutions: credit scoring and automated
wealth management or robo-advice.
In the case of credit scoring, AI could allow banks to widen their customer base,
providing credit scores for clients with limited or no credit history. Depending on the
programming of the algorithm, automation could decrease the possibility of human
bias when banks make a final decision.
In the case of automated wealth management, AI-based models, coming at reduced
cost, enable banks to provide such services to a much broader base of clients with
limited or no human intervention, although experience in the ECB shows that most
models are currently hybrid. There are examples of some banks running such services
in house, but also others which have chosen instead to partner with third-party
robo-advisors.
For all applications, adequate governance and understanding are important, both at
staff and board level. In addition, control functions and internal audit should be in a
position to assess the use of AI for various applications within the bank.
From a supervision angle, AI and machine learning (ML) can help to:
• facilitate and analyse regulatory reporting from financial institutions to
supervisors;
• improve (i.e. provide faster) alerts, feedback and guidance to supervised
institutions;
• break down language barriers by providing instant translation into, for example,
English.
The ECB believes that promising areas for consumers and firms could be more
proactive and customised services and recommendations (e.g. regarding financial
opportunities), improving account management, anomaly detection or preventing
default risks.
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Question 39
In your opinion, what are the main challenges or risks that the increased use of AI-
based models is likely to raise for the financial industry, for customers/investors, for
businesses and for the supervisory authorities?
Please rate each proposal from 1 to 5:
1. Financial industry
1
(irrelevant)
2
(rather
not
relevant)
3
(neutral)
4
(rather
relevant)
5
(fully
relevant) N.A.
1.1. Lack of legal clarity on certain
horizontal EU rules
X
1.2. Lack of legal clarity on certain
sector-specific EU rules
X
1.3. Lack of skills to develop such
models
X
1.4. Lack of understanding from
and oversight by the supervisory
authorities
X
1.5. Concentration risks
X
1.6. Other
Please specify what other main challenge(s) or risk(s) the increased use of AI- based
models is likely to raise for the financial industry:
The ECB outlines below risks related to different aspects of banks’ business models:
Governance
• management’s (possible lack of) technical skills, knowledge and experience;
• banks’ performance metrics need to be designed to capture innovative aspects of
credit scoring;
• ensuring that banks have the appropriate know-how and processes to identify
and manage potential incremental risks, related to customer or third-party data
privacy and use;
• ensuring that banks consider whether the use of AI/ML could inadvertently lead to
proxy discrimination, given the potential opacity of algorithms.
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Operational risk
• whether banks have in place appropriate safeguards to check data integrity;
• whether banks have in place verification and validation techniques to detect and
mitigate security and operational risks;
• whether banks have in place measures to ensure that the model is performing
well and is not deviating from the expected behaviour.
Other risks
• Risk management both for internally developed models and in the case of
outsourcing is a primary concern. Data quality risks are observed especially
where data is processed/prepared by third parties. However, in order to win
customers and remain profitable, banks see the need to keep pace with
technological innovation. In view of the risks of being an early mover and the high
investments needed (with uncertain returns), it is more a matter of when banks
will move towards implementing a new strategy.
• At the recent EU FinTech Lab, it was stressed that the explainability of AI models
remains key to ensure that the outcomes can be checked, and that the models
should not train themselves to become biased. Similar issues were discussed at
the ECB fintech industry dialogue on 21-22 May 2019.
46
• Legacy systems pose a challenge to the integration of AI.
• Quantum computing may become necessary to reap strategic benefits from
some technological advancements (e.g. the rapid growth of datasets and the
need for data processing power for AI models).
• Regulators and supervisors have indicated that they are assessing how these
changes and the increased technological capabilities are affecting banks. At the
EU FinTech Lab, it was also mentioned that AI is still in the early adoption phase
and has much more potential for the future. This would also mean that risks may
become more prominent going forward.
• Ethics: the development, deployment and use of any AI solution should adhere to
some fundamental ethical principles, such as the respect for human autonomy,
the prevention of harm, fairness and explainability.
47
These principles can be
embedded from the start in any AI project, in an “ethical by design” approach.
This also means that the business case made at the beginning of an AI project
can include a high-level analysis of conformity to ethical principles and can refuse
unethical solutions. Having an ethical policy in place enforcing the above
principles and setting the boundaries for acceptable and unacceptable use cases
are recommended. Such a policy can apply also when the AI solution (or part of
it, for example external data) is purchased from a third-party vendor.
46
See the presentation on the ECB Banking Supervision website.
47
As mentioned in the Ethics Guidelines for trustworthy artificial intelligence from the European
Commission’s High-Level Expert Group on AI, 8 April 2019.
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Furthermore, setting up an ethics committee (to validate new AI use cases,
periodically review fairness metrics from live models, etc.) or integrating this
function into an existing similar committee is also recommended, especially when
AI technology is widely used in a bank.
2. Consumers/investors
1
(irrelevant)
2
(rather
not
relevant)
3
(neutral)
4
(rather
relevant)
5
(fully
relevant) N.A.
2.1. Lack of awareness on the use
of an algorithm
2.2. Lack of transparency on how
the outcome has been produced
2.3. Lack of understanding on how
the outcome has been produced
2.4. Difficult to challenge a specific
outcome
2.5. Biases and/or exploitative
profiling
2.6. Financial exclusion
2.7. Algorithm-based behavioural
manipulation (e.g. collusion and
other coordinated firm behaviour)
2.8. Loss of privacy
2.9. Other
Please specify what other main challenge(s) or risk(s) the increased use of AI- based
models is likely to raise for customers/investors:
The ECB refrains from answering questions in relation to consumers.
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3. Supervisory authorities
1
(irrelevant)
2
(rather
not
relevant)
3
(neutral)
4
(rather
relevant)
5
(fully
relevant) N.A.
3.1. Lack of expertise in
understanding more complex
AI-based models used by the
supervised entities
X
3.2. Lack of clarity in explainability
requirements, which may lead to
reject these models
X
3.3. Lack of adequate coordination
with other authorities (e.g. data
protection)
X
3.4. Biases
X
3.5. Other
Please specify what other main challenge(s) or risk(s) the increased use of AI- based
models is likely to raise for the supervisory authorities:
The rapid evolution of technology, as well as the strong growth of datasets and data
processing power, could create gaps in supervision. However, supervisory authorities
should ensure the suitability (or lack thereof) of existing requirements on governance
and risk management regarding the use of AI. In the ECB’s view, the scarcity of AI
experts on the market has led to a reliance on third parties and related co-sourcing
and outsourcing risks, as has happened with cybersecurity experts. In addition,
specialised training in relation to AI techniques and data labelling requires a generally
significant effort, as well as the availability of scarce specialised supervisory
resources.
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Question 40
In your opinion, what are the best ways to address these new issues?
Please rate each proposal from 1 to 5
1
(irrelevant)
2
(rather
not
l)
3
(neutral)
4
(rather
relevant)
5
(fully
relevant)
N.A.
New EU rules on AI at horizontal
level
New EU rules on AI for the
financial sector
X
Guidance at EU level for the
financial sector
X
Experimentation on specific AI
applications under the control of
competent authorities
X
Certification of AI systems
X
Auditing of AI systems
X
Registration with and access to AI
systems for relevant supervisory
authorities
X
Other
Please specify what other way(s) could be best to address these new issues:
The ECB has selected the most relevant solutions from those identified in the table
above. In one particular case, an NCA has developed a number of general principles
with regard to AI. The principles are divided into six key aspects of responsible use of
AI, namely: (i) soundness; (ii) accountability; (iii) fairness; (iv) ethics; (v) skills; and
(vi) transparency (or “SAFEST”). From a prudential perspective, soundness is the
aspect of AI that is of primary concern. The application of AI in the banking sector
should be reliable and accurate, behave predictably, and operate within the
boundaries of applicable rules and regulations. Banks should also be accountable for
their use of AI, as AI applications may not always function as intended and can result
in damage to the firm itself, its customers and/or other relevant stakeholders. AI
applications should not inadvertently disadvantage certain groups of customers.
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Harnessing the benefits data-driven innovation can bring in
compliance and supervision
Question 41
In your opinion, what are the main barriers for new RegTech solutions to scale up in
the Single Market?
Please rate each proposal from 1 to 5:
Providers of RegTech solutions:
1
(irrelevant)
2
(rather
not
relevant)
3
(neutral)
4
(rather
relevant)
5
(fully
relevant) N.A.
Lack of harmonisation of EU rules
X
Lack of clarity regarding the
interpretation of regulatory
requirements (e.g. reporting)
X
Lack of standards
X
Lack of real time access to data
from regulated institutions
Lack of interactions between
RegTech firms, regulated financial
institutions and authorities
Lack of supervisory one stop shop
for RegTech within the EU
Frequent changes in the
applicable rules
X
Other
Please specify what are the other main barrier(s) for new providers of RegTech
solutions to scale up in the Single Market:
The ECB has selected the most relevant barriers from those identified in the table
above.
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Financial service providers:
1
(irrelevant)
2
(rather not
relevant)
3
(neutral)
4
(rather
relevant)
5
(fully
relevant) N.A.
Lack of harmonisation of EU
rules
Lack of trust in newly developed
solutions
X
Lack of harmonised approach to
RegTech within the EU
X
Other
Please specify what are the other main barrier(s) for new financial service providers
solutions to scale up in the Single Market:
The ECB has selected the most relevant barriers from those identified in the table
above.
Question 42
In your opinion, are initiatives needed at EU level to support the deployment of these
solutions, ensure convergence among different authorities and enable RegTech to
scale up in the Single Market?
Yes
No
Don’t know / no opinion / not relevant
Question 42.1
Please explain your answer to question 42 and, if necessary, please explain your
reasoning and provide examples:
From the ECB’s perspective, greater clarity regarding the interpretation of regulatory
reporting requirements, as well as enhanced standardisation, where feasible, could
make it possible for regtech applications to be scaled up and to become more widely
available. At the same time, coordination among supervisors could level the playing
field and enable economies of scale.
The compliance requirements for banks are numerous and extend across several
areas. At the same time, regulatory changes are frequent. The available regtech
solutions and their applicability to the current requirements should be checked
frequently. Entities with cross-border activities might need suitable solutions for each
jurisdiction, in accordance with the local regulatory framework. Hence, there is not one
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solution that will fit all. An assessment per solution category could be beneficial in this
respect, whilst taking into consideration the existence of different local frameworks.
Question 43
In your opinion, which parts of financial services legislation would benefit the most
from being translated into machine-executable form?
Please specify what are the potential benefits and risks associated with
machine-executable financial services legislation:
The ECB expresses no views on this question.
Question 44
The Commission is working on standardising concept definitions and reporting
obligations across the whole EU financial services legislation.
Do you see additional initiatives that it should take to support a move towards a fully
digitalised supervisory approach in the area of financial services?
Please explain your reasoning and provide examples if needed:
In the ECB’s view, banks are faced with a multitude of different incident reporting
schemes. The current different regulatory frameworks for cyber incident reporting in
the EU (e.g. PSD2, TARGET2, ECB/SSM, eIDAS, Network and Information Security
(NIS) Directive, GDPR, etc.) are characterised by different templates, taxonomies,
thresholds, information requirements and time frames. In addition, these frameworks
lead to the burden of multiple reporting of the same incidents in slightly different ways
to different authorities.
In the medium-to-long term, some centralisation through an EU hub for information
and communication technology (ICT) and security incident reporting could be
established. ICT and security incidents could be securely reported by banks through
the hub. The content of and thresholds for this reporting need, of course, to fit the
purpose of each of the authorities. Authorities could receive alerts from the hub and
retrieve information based on their mandate and individual needs. The creation of
such a centralised EU hub could enable a thematic analysis of incidents, help inform
authorities of common sectoral vulnerabilities and enhance our supervisory approach.
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Question 45
What are the potential benefits and drawbacks of a stronger use of supervisory data
combined with other publicly available data (e.g. social media data) for effective
supervision?
Please explain your reasoning and provide examples if needed:
In the ECB’s view, publicly available data could be useful in providing insights, even
though supervisory decisions or actions cannot be taken based directly and solely on
such data. An example would be the usage of alternative data from the news and
social networks for sentiment analysis.
In addition, publicly available data has the advantage of being widely accessible, with
limited or no confidentiality restrictions. However, the issue of data quality is crucial,
since low-quality data may lead to inaccurate estimations, unrealistic models and
ultimately poor decisions. Expert judgement will always be needed for the evaluation
of the information and the decision on the correct action to be taken.
4 Broader issues
Question 46
How could the financial sector in the EU contribute to funding the digital transition in
the EU? Are there any specific barriers preventing the sector from providing such
funding?
Are there specific measures that should then be taken at EU level in this respect?
In the ECB’s view, the digital transition will require substantial investments by EU
firms, in order to compete globally. In 2016, the value added of the ICT sector
accounted for 4% of EU GDP, compared with 5.8% in Japan, 5.4% in the United States
and 4.9% in China. Figures from the Digital Economy and Society Index report
published in 2019
48
also show that less than one-fifth of EU companies were highly
digitalised, although the picture is highly heterogeneous across Member States,
sectors and firms. While larger companies are relatively good at exploiting
e-commerce possibilities (with 42% of companies with more than 250 employees
making e-sales in 2018), SMEs were lagging behind (with only 19% making e-sales in
2018).
The ECB is of the view that successfully making the digital transition and reaping the
benefits of the digital Single Market require adequate IT infrastructures. While the EU
budget is already financing, for example, broadband internet connections through the
Connecting Europe Facility, private financing will also be needed. When developing
new online businesses, firms will also have to invest in cybersecurity and operational
resilience, which should be covered by private financing. Overall, before the
48
See the European Commission’s website.
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COVID-19 crisis, SME spending on digitalisation was expected to reach €65 billion by
2022.
49
EU corporates, and in particular SMEs, rely largely on bank funding. However, the
pandemic may lead to a deterioration of bank asset quality and an increase in
non-performing loans, which may in turn limit banks’ ability to provide additional
lending to EU companies. Digital technologies are also reliant on intangible capital,
which poses specific challenges.
50
The nature of intangible assets makes them less
easy to use as collateral, so firms that invest in intangible assets use less debt
financing (both from banks and from markets). Instead, these firms finance
themselves with retained earnings and equity.
51
Against this background, a greater
supply of market-based, equity funding would facilitate the digital transition.
52
Further
progress in developing the capital markets union is therefore needed, in order to meet
new funding needs stemming from the adaptation to long-term challenges, be it
digitalisation or sustainability. In this respect, the final recommendations of the
Commission’s High-Level Forum on capital markets union should provide a sound
basis for a new action plan, which is expected later this year.
The ECB recognises that digitalisation has the potential to facilitate capital market
funding, by bridging the gap between investors and firms, e.g. through investment
platforms. Lastly, informational gaps could also be addressed through the
development of single data access portals, which would facilitate due diligence by
investors and reduce transaction costs for companies.
Question 47
Are there specific measures needed at EU level to ensure that the digital
transformation of the European financial sector is environmentally sustainable?
In the ECB’s view, the financial sector (including FMIs) requires a substantial amount
of energy and resources to operate (as visible, for instance, in the higher uptake of
cloud technology in the financial sector relative to other sectors). The digital
transformation of the sector may pose risks in this respect, should innovative services
be implemented without taking their environmental impact into account. At the same
time, however, it also creates opportunities to use technology to reduce the
environmental footprint of financial services and infrastructures. Certain actors in the
market have already implemented plans to account for and manage their impact on
the environment; establishing standards, best practices or a discussion forum would
facilitate a harmonious transition at the level of the European market. In particular, the
criteria for environmental sustainability could be given more importance when
49
See “Financing the digitalisation of small and medium-sized enterprises ‒ The enabling role of digital
innovation hubs”, European Investment Bank, 2019.
50
See the welcome remarks by Philip R. Lane, Member of the Executive Board of the ECB, at the ECB
conference on “Challenges in the digital age”, Frankfurt, 4 July 2019, and Dell’Ariccia, G. et al., “Bank
lending in the knowledge economy”, Working Paper Series, No 2429, ECB, June 2020.
51
See Andersson, M. and Saiz, L., “Investment in intangible assets in the euro area”, Economic Bulletin,
Issue 7, ECB, 2018.
52
See De Haas, R. and Popov, A., “Finance and carbon emissions”, Working Paper Series, No 2318, ECB,
September 2019.
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implementing new services (e.g. payment methods) or FMIs. Additionally, FMIs, with
their high level of reliability, could be leveraged to facilitate the provision of information
to their users regarding the environmental impact of goods, services or investment
products.
Some DLT set-ups use the consumption of energy to create a barrier against attacks
as an alternative to the identification of parties involved in the validation of transactions
(referred to as “proof of work”). In the light of the EU ambition to make the EU economy
sustainable and to become the first climate-neutral continent (under the European
Green Deal), and the EU agenda on sustainable finance, energy-intensive solutions
should be discouraged. In this context, some entities have also started using AI to
make their energy use more efficient.
As a result, the ECB would endorse the development of a monitoring and reporting
framework at global level concerning financial entities’ environmental footprint,
including their supply chain.
© European Central Bank, 2020
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