Building on its 2018 FinTech Roadmap, the EBA has issued a report focused on potential impediments to the cross-border provision of banking and payment services. In the 29 October 2019 report, the EBA identifies three regulatory areas in which the further integration of European banking and payment services markets can be improved. The three areas the EBA addresses are authorisation and licensing, conduct of business and consumer protection requirements, and anti-money laundering ("AML") and countering the financing of terrorism ("CFT").
In its 2018 FinTech Roadmap, the EBA concluded that digital solutions have the potential to enable providers of financial services to reach a greater number of customers. However, in 2016 only 7 % of consumers used financial services from another EU Member State; it is therefore unsurprising that the EBA sees room for improvement in this area. As a follow-up to its FinTech Roadmap, the EBA has tried to identify legal issues which may deter FinTech firms from providing cross-border services, and has offered solutions to these issues.
The first impediment the EBA identifies are varying approaches across Member States with regard to authorisations and licensing granted by the regulators. Market participants have complained that there are significant differences between competent authorities concerning the regulatory requirements imposed before being permitted to branch operations across the EU. The associated cost of compliance further hinders firms looking to provide cross-border services. Additionally, there is not enough publicly-available information for financial service providers to understand the requirements they might be subject to if they provide services on a cross-border basis. Furthermore, EBA identifies that competent authorities lack visibility in relation to cross-border activities due to the weaknesses in current reporting requirements.
The second impediment concerns the diverging standards related to the conduct of business and consumer protection requirements. EBA specifies that a lack of harmonisation in the areas of advertising, and in the information that financial service providers have to provide to consumers, presents issues regarding consumer disclosures . Additionally, the EBA finds that the complaints-handling procedures are not fully harmonised, which leads to differing standards in terms of consumer protection. Moreover, a lack of clear allocation of responsibilities between home and host competent authorities can lead to regulatory gaps and arbitrage, resulting in lower protection for consumers.
The third impediment EBA points out is the varying approach to AML and CFT in different Member States. The EBA notes that as a result of minimum harmonisation, many Member States have imposed varying levels of regulatory standards concerning AML and CFT. For example, Member States have introduced different requirements when it comes to client due diligence and acceptable digital identification standards. What is more, the extent to which financial service providers can rely on third parties to assist them in complying with the applicable AML and CFT requirements also differs between Member States.
The way ahead
The EBA has identified several solutions to the abovementioned obstacles. Regarding authorisations and licensing it suggests that the EU legislator promulgates new reporting requirements, which would oblige participants in cross-border activities to notify both home and host competent authorities.. It also suggests an additional mandate for the EBA to issue guidelines to promote more consistent communication from competent authorities on requirements imposed in host jurisdictions. The consumer protection requirements can be improved by introducing new legislative proposals to further harmonise consumer-facing disclosure requirements, the allocation of home/host responsibilities for the supervision of complaints handling in the context of cross-border services, and supervisory powers concerning the right of establishment and freedom to provide cross-border services. The EBA proposes to solve the differing AML and CFT requirements between various EU Member States by imposing further harmonisation requirements under the relevant directives. This is potentially another step towards an AML and CFT regulation which would apply directly in all EU Member States.
The report shows that the EU legislator has a lot more work to do to further integrate the financial services market. We therefore expect that the regulatory landscape - for both FinTech firms and more traditional financial services providers - will continue to change at a fast pace.