- The Digital Finance Package
By means of the adoption on 24th September 2020 of the Digital Finance Package (the "Package"), the European Commission (the "Commission") points out that digital technologies represent a key for relaunching and modernising the European economy, paving the way for becoming a global digital player.
The Package includes:
(i) a communication on a digital finance strategy (the "Digital Finance Strategy");
(ii) a communication on a retail payments strategy (the "Retail Payments Strategy");
(iii) a proposal for a regulation on digital operational resilience for the financial sector (the "Legislative Proposal on digital operational resilience"); and
(iv) proposals for regulations on markets in crypto-assets and on a pilot regime for market infrastructures based on distributed ledger technology (the "Legislative Proposals on crypto-assets"); both of which (i.e., (iii) and (iv) above) to be issued by the EU Parliament and the Council.
It should be noted that, among the afore-said measures, an immediate impact on each EU Member State's regulatory framework will have the two proposals on digital operational resilience and on crypto-assets as, once issued in their final version, they will be directly applicable in the whole Union.
1.1 Digital Finance Strategy
The Digital Finance Strategy sets out some priorities, in order to guide centralised actions for the promotion of the EU digital transformation up to the year 2024. According to the Commission, both EU consumers and firms need to remove obstacles to reap the opportunities of innovative technologies, so as to enable consumers to have access to cross-border services and firms to scale up their digital operations, and grow.
However, keeping up with the digital age also means making the EU regulatory framework more technology neutral and innovation friendly, as well as embracing the digital transformation proactively, while mitigating any potential risks deriving from the entering of the Big Techs into the financial ecosystem. Such risks not only affect consumers (e.g., policy-holders, investors and depositors), but also involve broader financial stability and competition in financial services markets issues.
The Commission is addressing the above risks by adapting, where necessary, the existing conduct and prudential EU legal frameworks so as to continue safeguarding financial stability and protecting customers in line with the "same activity, same risk, same rules" principle. The Commission itself will also cooperate with the European Central Bank (the "ECB"), national central banks and competent authorities in this process.
1.2 The Retail Payments Strategy
Digital innovation is radically reshaping the provision of financial services. On the one hand, innovation and digitalisation will continue to change how payments work, and, on the other hand, the Covid-19 pandemic has further reinforced the shift to digital payments, while confirming the importance of safe payments for remote transactions.
Nevertheless, in the EU, cash remains the means used for a majority of retail payments. For this reason, the Commission focuses on the need to increase digital and instant payment solutions with pan-European reach, and make innovative and competitive retail payments markets, as well as efficient and interoperable retail payments systems.
In addition, in spite of the Payment Services Directive (i.e., Directive (EU) 2015/2366 of the European Parliament and of the Council of 25th November 2015 on payment services in the internal market; "PSD2") not being fully enforced yet, the Commission strongly believes in the potential of open banking. To this end, it is launching by the end of 2021 a comprehensive review of PSD2, while presenting a legislative proposal for a new "Open Finance" framework by mid-2022.
1.3 Legislative Proposal on digital operational resilience
The financial services sector's reliance on information and communication technologies (ICT), accelerated by the Covid-19 pandemic, brings about some concerns, due to several digital threats. The Commission points out that the firms need to be able to withstand potential ICT disruptions so that digital incidents and cyber-threats are addressed properly and services always maintained active.
The underlying goal is thus to strengthen the digital operational resilience of the EU financial sector by streamlining existing EU financial legislation, as well as by introducing new requirements where gaps exist. To this end, a financial services digital operational resilience act would introduce a comprehensive framework at EU level, setting out rules for all regulated financial institutions, so as to ensure a safe financial system across such sectors, thereby avoiding a domino reaction.
1.4 Legislative Proposals on crypto-assets
The Commission aims to set out the basis for the development of an EU crypto-asset market, so as to become the first major jurisdiction to regulate the latter. It follows a "light approach", to the extent that it applies requirements already in place in the traditional financial services sector (such as, for instance, the prior authorisation, as well as the obligation to publish an information document (called "white paper") prior to the public offering of crypto-assets).
In particular, the proposal on markets in crypto-assets (MICA) concerns those falling outside the scope of the EU financial services legislation (i.e., Directive 2014/65/EU ("MIFID II") and Electronic Money Directive ("EMD 2")) and aims at avoiding regulatory arbitrage, while ensuring adequate protection for consumers.
It would hence lay down the foundation for the development of a larger cross-border market for crypto-asset issuers and service providers, thereby reaping the full benefits of the EU single market and significantly reducing the complexity and the financial and administrative burdens for all stakeholders.
Moreover, harmonising operational requirements on crypto-asset service providers and the disclosure requirements on issuers could also bring clear benefits in terms of investor protection, market integrity and financial stability.
Conversely, the proposal on a pilot regime for market infrastructure based on distributed ledger technology ("DLT") covers crypto-assets that can be qualified as financial instruments under MIFID II, and intends to remove the lack of legal certainty on how to apply the existing EU financial regulation (i.e., MIFID II and EMC 2). This would address the risks created by the proliferation of guidance and interpretations at national level, which lead to the fragmentation of the EU internal market and distortion of competition within the latter. According to the afore-said proposal, such crypto-assets would be subjected to a pilot regime (a kind of "sandbox" approach), allowing for a temporary derogation from existing rules, so as to enable, on the one hand, regulators to gain experience on the use of DLTs in market infrastructures, and, on the other hand, companies to learn more about how existing rules fare in practice.
- Conclusive remarks
In brief, the Package clearly aims at strengthening EU digital sovereignty, while making Europe more competitive at global level. This goal seems to be also confirmed by the recent ECB's "Report on a digital euro" of 2nd October 2020, which promotes the creation of a digital euro currency alongside cash.
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