Financial technology (fintech) startups shouldn’t have less stringent licensing requirements than mainstream financial firms, European securities regulators say, although they see benefits to innovation in fintech.
In its response to a European Commission consultation paper that was published Wednesday, the European Securities and Markets Authority (ESMA) says that it sees fintech as a positive, “as long as business models aim at improving financial consumer experiences and facilitate financial inclusion.”
Against that background, ESMA cautions against giving fintechs a lighter touch in terms of regulatory requirements. “One should be cautious about the idea of regulating and supervising these companies in a different manner for the reason that they are start-ups and they would need more flexibility to develop,” the consultation paper says.
Instead, firms should be regulated on a level playing field, regardless of whether they are startups or established players.
“What should be regulated is the provision of a service or an activity independent of the form of the firm providing this service or activity. Therefore, we do not see a strong case for the creation of specific licensing categories for fintech startups,” the paper says.
The one concession ESMA recommends for fintechs is that they should receive help in navigating the regulatory framework. It notes that fintechs might need more advice from supervisors, and says that the launch of innovation hubs by regulators to help guide fintechs through the legal and regulatory framework, “should be encouraged.”
In the consultation paper, the regulator also says that while the use of artificial intelligence and big data analytics for automated advice has potential benefits, it also believes that these technologies may trigger a number of concerns. The paper also stresses that ESMA believes that, “technology-driven cost savings should be passed on to consumers.”
ESMA also reiterates its call for a European regime to regulate crowdfunding to ensure that investors across the region “are equally protected and which would enable crowdfunding platforms to operate cross-border based on a common regulatory framework.”
Additionally, the paper provides the regulator’s initial views in several emerging areas, including the use of “regtech,” outsourcing and cloud computing, and the development of distributed ledger technology.