EBA Contribution to joint ESAs response to the European Commission's Call for Advice on digital finance

EU – Finance 

On 21 September 2021, the European Banking Authority (“EBA”) published a report on the growing platformisation of the EU banking and payments sector. In particular, this report considers steps to strengthen the EBA’s supervisory capacity to monitor market developments. The findings in the report informed the EBA’s contribution to the joint European Supervisory Authorities' ("ESAs") response to the European Commission's February 2021 Call for Advice on digital finance, released on 7 February 2022.

Key date(s)

• September 2020: European Commission releases its Digital Finance Strategy.
• 2 February 2021: European Commission publishes its call for advice on digital finance from the EBA, European Insurance and Occupational Pensions Authority ("EIOPA"), and European Security and Markets Authority ("ESMA") (the "Call for Advice").
• 21 September 2021: EBA publishes the 'Report on the Use of Digital Platforms in the EU Banking and Payments Sector' (the "Report").
• 7 February 2022: ESA releases a joint response to the Call for Advice (the "Joint Response").

Status

• The trend of platformisation has offered opportunities for growth for traditional institutions such as banks (particularly as they look to increase digital access to their services) as well as improving accessibility for consumers. However, monitoring platforms has proven challenging, notably as financial, operational and reputational interdependencies have begun emerging and triggered concerns around consumer rights and data protection.
• The European Commission's Call for Advice on the matter in February 2021 addressed various concerns, including fragmented value chains (arising due to financial firms' growing reliance on third parties for service delivery and technology), platforms, and the bundling of various financial services and groups combining different activities. The EBA first responded to the Call for Advice with the Report and, as of mid-Q1 2022, responded as part of the ESAs alongside EIOPA and ESMA in the Joint Response. As well as this, the three authorities have carried out market development analysis and assessed the risks and opportunities that face the ever-digitalising financial sector.

 What it hopes to achieve 

• The Joint Response identifies digital concerns and opportunities in the financial sector with the aim of recommending actions which will effectively mitigate risks and capitalise on developments. Among the opportunities presented by the increasing use of digital platforms is the chance to promote and reform convergence in cross-border and interdisciplinary services, collaborative AML and CFT efforts, and to strengthen consumer protections in a digital context. Potential concerns include the effective regulation and supervision of mixed activity groups (i.e. groups providing both financial and non-financial services) and monitoring social media in financial services.
• The ESAs hope their recommendations will have benefits for consumers by strengthening consumer protections and services through financial literacy, more effective disclosure practices, better delivery concerning complaints-handling and redress mechanisms, and the use of social media to market financial products and services.
• The EBA also hopes that it will be able to, during the course of 2022, help competent authorities develop questionnaires for regulated financial institutions on digital platforms and facilitate EU-wide monitoring by sharing information via digital platforms.

Who does it impact? 

• The Joint Reponse will likely have a direct impact on EU proposals and future regulations which, if they choose to adhere to the ESAs' advice, will promote holistic approaches and collaborative efforts across digital and financial practices.
• Banks and other non-traditional financial institutions will need to review their policies on data protection, social media monitoring, and due diligence checks both in light of potential new legislation and current data protection legislation which will become more and more relevant as practices shift to the digital sphere.
• Consumers may find themselves reaping the benefits of these changes to the extent that they are effectively implemented and find services improve regarding complaints handling, marketing, and general consumer protections.

Key points 

1. Capitalising on developments

• • The Joint Response found that digitalisation of the financial and payments sectors presents both the financial and non-financial worlds with benefits on which they can capitalise. Digital platform use can improve the effectiveness of B2B and B2C communications, leading to faster and more diligent consumer interactions, AML and CFT, and cross-border services.

2. Mitigating risks

• • Although beneficial, the growing shift towards digital platforms in the financial and payments sectors does not come without risks. Financial and non-financial institutions alike will need to cautiously review their data protection policies and processes in order to avoid breaches and subsequent fines as well as attendant loss of market confidence.

3. Non-integrated value chains

• • Financial institutions are working with non-financial institutions more often to benefit from service delivery, technology, and other digital assets. Fragmented value chains like these leave more opportunities for risks to emerge, such as data hacking and privacy claims.

This blog post provides an overview of a key recent or upcoming development in digital regulation in the UK or EU as part of our horizon scanning timeline which can be found below.

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