Digital finance package

Details

Publication date: 24 September 2020
Author: Directorate-General for Financial Stability, Financial Services and Capital Markets Union

Description

Based on broad public consultations and the Digital finance outreach, the European Commission adopted on 24 September 2020 a digital finance package, including a digital finance strategy and legislative proposals on crypto-assets and digital resilience, for a competitive EU financial sector that gives consumers access to innovative financial products, while ensuring consumer protection and financial stability. The package supports the EU’s ambition for a recovery that embraces the digital transition. Digital financial services can help modernise the European economy across sectors and turn Europe into a global digital player.

By making rules more digital-friendly and safe for consumers, the Commission aims to leverage synergies between high innovative start-ups and established firms in the financial sector while addressing associated risks.

Digital finance strategy

The digital finance strategy sets out general lines on how Europe can support the digital transformation of finance in the coming years, while regulating its risks. The strategy sets out four main priorities: removing fragmentation in the Digital Single Market, adapting the EU regulatory framework to facilitate digital innovation, promoting a data-driven finance and addressing the challenges and risks with digital transformation, including enhancing the digital operational resilience of the financial system.

Embracing digital finance would unleash European innovation and create opportunities to develop better financial products for consumers, including for people currently unable to access financial services. It unlocks new ways of channelling funding to EU businesses, in particular SMEs.

Boosting digital finance would therefore support Europe’s economic recovery strategy and the broader economic transformation. It would open up new channels to mobilise funding in support of the Green Deal and the New Industrial Strategy for Europe.

As digital finance accelerates cross borders operations, it also has the potential to enhance financial market integration in the banking union and the capital markets union, and thereby to strengthen Europe’s economic and monetary union.

A strong and vibrant European digital finance sector would strengthen Europe’s ability to reinforce our open strategic autonomy in financial services and, by extension, our capacity to regulate and supervise the financial system to protect Europe’s financial stability and our values.

Legislative proposals on crypto-assets to draw on the possibilities offered by crypto-assets, while mitigating risks for investors and financial stability

The Commission proposes a framework on crypto-assets to allow for innovation in a way that preserves financial stability and protects investors. Crypto-assets are digital representations of values or rights, which are transferred and stored electronically. They can serve as an access key to a service, could facilitate payments, or could be designed as financial instruments.

The Commission differentiates between those crypto-assets already governed by EU legislation, and other crypto-assets. The former will remain subject to existing legislation but the Commission proposes a pilot regime for market infrastructures that wish to try to trade and settle transactions in financial instruments in crypto-asset form. This should enable market participants and regulators to gain experience with the use of DLTs exchanges that would trade or record shares or bonds on the digital ledger.

For previously unregulated crypto-assets, including ‘stablecoins’, the Commission proposes a bespoke regime. The proposed regulation sets strict requirements for issuers of crypto-assets in Europe and crypto-asset service providers wishing to apply for an authorisation to provide their services in the single market. Safeguards include capital requirements, custody of assets, a mandatory complaint holder procedure available to investors, and rights of the investor against the issuer. Issuers of significant asset-backed crypto-assets would be subject to more stringent capital requirements, liquidity management and interoperability requirements.

Legislative proposal for an EU regulatory framework on digital operational resilience – Prevent and mitigate cyber threats

The ever-increasing dependency of the financial sector on software and digital processes means that information communication technologies (ICT) risks are inherent in finance. The Commission therefore proposes that all firms ensure they can withstand all types of ICT-related disruptions and threats. Banks, stock exchanges, clearinghouses, as well as fintechs, will have to respect strict standards to prevent and limit the impact of ICT-related incidents. The Commission also sets an oversight framework on service providers (such as Big Techs) which provide cloud computing to financial institutions.

Renewed strategy for modern and safe retail payments

The retail payments strategy for the EU aims to further develop the European payments market so Europe can benefit fully from innovation and the opportunities that come with digitalisation. The strategy focuses on: creating the conditions to make the development of instant payments and EU-wide payment solutions possible; consumer protection and ensuring payment solutions are safe; and lessening Europe’s dependency on big global players in this area.

Files

24 SEPTEMBER 2020

Factsheet: The retail payments strategy