On 3 April 2020, the European Commission published a public consultation that aims to drive its upcoming strategic roadmap for digital finance, expected for end 2020.

While digital finance was already one of the building blocks of the new Commission's digital strategy, it now takes on a more strategic dimension in the context of the Covid-19 pandemic that is shaking Europe and the rest of the world. The economic emergency, which is a corollary of the health crisis, has indeed revealed the need to greatly support and accelerate the digitisation of financial services and, more broadly, financial innovation. This will be key to ensuring the continuity of financial services in times of crisis, and to contributing in a sustainable way to the functioning and financing of the European economy.

The European Commission's consultation aims to drive a detailed action plan for the next five years on the digitisation of financial services. The Commission intends to structure this action plan around four main topics: (i) putting in place a regulatory framework adapted to current and future digital realities and developments; (ii) combating the fragmentation of the Single Market and enabling Europe-wide players to develop; (iii) promoting a data-driven financial sector for the benefit of EU consumers and firms; and (iv) strengthening the operational digital resilience of the European financial system. This latter topic was the subject of a dedicated consultation, launched at the end of December 2019, and is therefore not addressed in this consultation.

With regard to the regulatory adjustments and/or innovations to be made to the existing framework (Topic 1), work has already begun. An ad hoc consultation on the regulation of the crypto-assets market closed on 19 March. The digitisation of retail payment services was also the subject of a separate consultation document, published on 3 April 2020, with a view to establishing a dedicated strategy. Generally speaking, the Commission wishes to ensure the development of technological innovation in the financial field by putting in place an appropriate legal framework. Building on the founding principle of technological neutrality, the Commission aims to anticipate the development of new business models and new services (developed, in particular, by Big Tech Companies), while limiting the associated risks. The GAFAM are clearly targeted here, and the suitability of financial regulation as applied to their activities is brought into question. This has been a central concern, particularly for European institutions, since the launch of the Libra project by Facebook in the course of 2019.

As it is looking to offer the best conditions for the development of Europe’s future "digital champions", the European Commission is also asking stakeholders for solutions that could be considered to remove fragmentation of the Single Market for digital financial services (Topic 2). The Commission is thus looking into a "digital financial identity", which could facilitate the Know-Your-Customer process (KYC). The objective here would be to guarantee, within the EU, the interoperability of technological solutions used in the various Member States by (i) ensuring, for example, maximum harmonisation of the applicable requirements (in particular as regards remote identification); (ii) developing the implementation of harmonised digital on-boarding processes; or (iii) facilitating cooperation between public authorities and private developers of e-identity solutions.

The topic of data management and processing is also central in the European Commission's reflections (Topic 3). This is justified by the fact that the financial sector is a huge consumer of data (both market data and customer data). Clearly motivated by the emergence of "open innovation" and the observation of new processes and organisations structured around sharing and collaboration, the Commission is considering how to implement an open finance policy. Such a policy would make it possible to stimulate financial innovation, while ensuring adequate protection of the personal and non-personal data used. The use of artificial intelligence tools by the financial sector is also addressed and echoes the work that has already been carried out in this field at national level by some competent authorities. The aim is to identify the specific risk implications and potential regulatory loopholes. Answers to these questions will feed into the Commission's data strategy reflections.

This consultation is a key step in developing the European Commission's roadmap for digital finance, and reflects the Commission's ambition to foster the emergence of European champions. It is part of an overall approach to support the digital sector and complements other initiatives, some of which are more targeted (e.g. crypto-assets and means of payment), or cross-disciplinary (e.g. defining a European data strategy).

Undeniably, it is also a call for action for established players and new entrants alike, at a time when the accelerated digitisation of financial services has been demonstrated and is moving towards a new generation of tools, solutions and technologies.

This consultation is open until 26 June 2020.

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This legal update is intended for non-exhaustive general information. It is not intended to be and should not be construed as providing legal advice from Gide.

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