Capital Markets Union – What Does It Mean For The Fintech Industry?
by Inline Policy on 01 Oct 2015
On a day when the entire financial services industry in the UK and in Continental Europe dissected the long-awaited – albeit leaked – European Commission Action Plan on Capital Markets Union, a few eyebrows were raised about some potential implications for the fintech community. Regulators at national and supranational level are still pondering over an optimal regulatory framework to promote the fintech industry whilst at the same time ensuring adequate consumer protection; but not necessarily on a like-for-like basis with the established providers, who are already beginning to use the ‘level playing field’ argument to challenge the disruptors.
The Commission’s Action Plan offers a proportionate way forward for fintech companies that should please both industry and other commentators, in that EU officials continue their wait-and-see approach rather than putting forward wholesale legislative changes immediately. The Directorate-General for Financial Stability, Financial Services and Capital Markets Union (FISMA) is continuing to chair the periodic meetings of the Crowdfunding Stakeholder Group and is mapping current market practices as well as potential consumer detriment issues and national regulatory frameworks that have emerged.
It will publish a Report on Crowdfunding – both lending- and investment-based – by the first quarter of next year and points out that while there is already a nascent EU legislative framework in place for investment-based crowdfunding (namely the revised Markets in Financial Instruments Directive, MiFID 2, for firms wishing to passport into other EU Member States), no equivalent EU law exists for peer-to-peer lending. This is clearly an area to be watched, as both the European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) have already advised the Commission – about what Directives might have to be changed to take account of the specificities of the fintech sector.
There is one piece of low-hanging fruit on the legislative front which crowdfunding companies would be well advised to pay attention to and, if appropriate, to talk to decision-makers in Brussels about: It is the review of the Prospectus Directive. Earlier in the year the Commission launched a public consultation about how the existing Directive could be simplified so that SMEs found it less of a bureaucratic obstacle when they have to prepare a prospectus ahead of a public listing.
Needless to say that once the Commission’s legislative proposal is published by the end of the year, Members of the European Parliament and national delegations sitting in the Council of (28 Member States) will have very different views about the desirable outcome of this revision process.
The other policy initiative to watch out for at EU level is a forthcoming Discussion Paper on Automated Financial Advice, which will be published by the three European Supervisory Authorities (EBA, ESMA, EIOPA) by the end of the year. This might mirror the FCA Guidance on Retail Investment Advice, published in January of this year, but will look at the boundaries between information/execution only and regulated advice across all areas of financial services, including retail. At their joint Consumer Protection Conference in Frankfurt in June, the three ESAs made it clear that they welcome the emergence of automated advice because it is too costly on traditional distribution channels, and the new technology being developed is likely to make advised-based sales available to a larger segment of the population.
The problem is how you delineate full regulated advice with a personal recommendation; from partial advice and information only services, which trigger suitability and appropriateness tests, but the distinction of which is often blurred in the digital space.
So as the regulatory framework is being developed, the advice to fintech companies has to be to start engaging with decision-makers in a proactive and constructive way so that the emerging legislation remains benign and supportive of what is a growing and exciting space to be in!