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02 December 2019
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European Commission's Expert Group publishes report on Regulatory Obstacles to Financial Innovation

Just in time for Christmas, the European Commission's Expert Group published its eagerly awaited final report on regulatory obstacles to financial innovation on 13 December 2019 (the "Report").

Following a call for applications in March 2018, the group was tasked with reviewing the fitness of the EU financial services regulatory framework for the use of innovative technology in the context of the FinTech Action Plan ( It comprised representatives of different groups of stakeholders such as incumbent financial institutions, new entrants into the financial market and their financiers, members of academia and of the legal profession.

The Report sets out 30 policy recommendations to create an accommodative framework for technology-enabled provision of financial services ("FinTech") in the EU and identifies obstacles in existing EU legislation which – together with inconsistent application of EU law and the gap in supervisory knowledge in various areas – are seen as hampering FinTech innovation.

Driven by the need for "technological neutrality" in regulatory and supervisory approaches ("same activity, same risk, same rules"), the group also urges a cross-sectoral and, where relevant, internationally coordinated approach in view of the potential application of FinTech across the financial sector to scale up FinTech across the single market and enhance the global competitiveness of the EU.

Recommendations are grouped into the following four categories:

  1. The need to adapt the regulations to respond to new and changed risks caused by using innovative technologies, such as AI and DLT. On crypto-assets, the Report urges assessment of the adequacy and suitability of existing rules, complementing legislation where necessary and advocating for a common taxonomy in respect of crypto-assets to address fragmented national approaches when classifying crypto-assets under EU rules, such as MiFID;
  2. The need to remove regulatory fragmentation and ensure a level playing field between incumbents and new market entrants across the EU. This includes an activity and risk (rather than institutions/sector) based approach to regulation, promotingsupervisory convergence in its application, assessing the merits of an EU-level regulatory sandbox, fully harmonising customer due diligence (CDD) and know your customer (KYC) processes and requirements for verification and data collection as well as digital identity verification or removing default paper requirements when transacting with consumers;
  3. The necessity to reconcile the data & privacy regulation with the opportunities and risks offered by FinTech. This includes guidance on the application of GDPR requirements (erasure, consent) in connection with DLT/blockchain and AI testing, as well as the possibility of sharing data (beyond PSD2 payment data) real-time at the instruction of a user;
  4. The need to consider the potential impacts of FinTech from the perspective of financial inclusion and the ethical use of data. This relates to a variety of policy considerations, including the ethical application of AI solutions for purposes of credit scoring and robo advice, most notably the explainability or interpretability of automated decisions or theprovenance of (non-customer sourced) data.

The top recommendations which the group recommends addressing as a matter of priority are:

  1. the explainability and interpretability of technology, especially AI, as measures to protect consumers and businesses and facilitate supervision, or to meet supervisory expectations;
  2. the creation of a regulatory framework built on the principle that activities that create the same risks should be governed by the same rules to ensure adequate regulation and supervision while maintaining a level playing field;
  3. ending regulatory fragmentation, especially in the area of CDD and KYC, which is perceived to be the single most important obstacle harming the provision of cross-border services using FinTech.  

The full Report is available here:

While the Report is certainly an important step to further shape the European Commission's digital agenda and FinTech Action Plan, none of the recommendations appear to be quick fixes. It is encouraging though that major industry associations such as the AFME, the association for financial markets in Europe, have already welcomed this publication, stating that the Report "is key to furthering the digital agenda in Europe" and that "a strong technology agenda is essential for the EU to remain competitive and at the forefront of global innovation". In particular its

  • case made for harmonisation by emphasis, the need to reduce fragmentation and ensure greater coordination and consistency in regulatory approaches;
  • focus on ensuring a level playing field;
  • endorsement of a technology-neutral, principles-based approach; and
  • focus on ensuring strong consumer and investor protection

were well received and the AFME is committed to supporting the European Commission to shape a regulatory environment that nurtures innovation and helps take advantage of the opportunities FinTech presents (

Author: Ursula Rath



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