An excessive extension of the regulatory perimeter for fintech firms is likely to be a sub-optimal solution. It would risk excessively constraining financial innovation, as the compliance burden placed on banks is not sustainable for small innovative start-ups
Andrea Enria, the chairperson of the European Banking Authority (EBA), sets out a “roadmap” on Friday to help plug gaps in how the rapidly evolving financial technology sector is regulated, but urged caution in tackling cryptocurrencies.
The European Commission released its “Action Plan” designed to develop an EU-wide regulatory framework for fintech, including Blockchain. Last week, the Governor of the Bank of England commented that crypto should be regulated and not “banned outright.”
Andrea Enria, suggested on Friday it would be more effective to prevent banks and other regulated financial institutions from holding or selling cryptocurrencies rather than regulating the digital coins themselves.
Regulators have held back for several years from introducing comprehensive rules for fintech, saying the sector is still tiny compared with mainstream banking. Politicians are also keen not to stifle innovation as London, Paris and Berlin jostle to lure fintech firms.
Enria supports withholding the full force of regulatory measures from fintech firms, so long as they do not perform the same functions of banks, providing credit, debit, and liquidity.
However, Enria added that EU regulators should not permit “de facto banks” to offer a combination of “deposit-taking and lending” without rigorous regulatory supervision.
One way to help fintech firms innovate is through sandboxes, and Enria says that the EBA will look into setting best practice guidelines to ensure consistency in how these work across the EU. The EBA will also set up a fintech knowledge hub, to facilitate information exchange between different authorities and market participants.
“We need to ensure that firms can enter and participate in the internal market for financial services on an equal footing and that a high standard of consumer protection is maintained,” Enria said in a speech at Copenhagen Business School.
Enria noted that fintech regulation must take place across the European Union in order to keep EU firms competitive with the US and China.
Resource: Read Andrea Enria’s Speech to the Copenhagen Business School; Designing a Regulatory and Supervisory Roadmap for Fintech