European securities regulators are examining the risks and rewards of an increasingly digital financial sector.

The European Securities and Markets Authority (ESMA) launched a consultation on May 25 on digital finance, which will inform possible policy reform in the region.

In its consultation paper, the regulator said that while digital innovations have the potential to improve services and inclusion — while lowering costs — they also carry an array of risks. “They can contribute to introduce or exacerbate new risks,” the regulator said, citing concentration risk, competition risks and cybersecurity risks.

“Also, the existing regulatory and supervisory framework may not fully capture and address these new developments,” the paper said.

In particular, the consultation seeks feedback on issues such as technology companies entering the financial business; the increased reliance of financial firms on third parties to deliver services; and the bundling of financial services on digital platforms.

The consultation, open until Aug. 1, is intended to help inform ESMA’s advice to European policymakers on possible rule changes. The regulators aim to provide their recommendations by Jan. 31, 2022, with reforms likely by mid-2022.