ESMA’s Report on Licensing FinTech Companies in the EU
The European Securities and Market Authority (ESMA) reported concerning the licensing of FinTech companies in Europe, based on two surveys which took place in January 2018 and January 2019. The data collected through the surveys concern the licensing administration of FinTech companies in national authorities and their jurisdiction. ESMA supports that there is no need for any alterations in the existing EU regulatory system as such business models can function well in the current framework. However, it strengthens its conclusions made in the recent reports on crypto-assets/ICOs/DLT, cyber security and innovation facilitators in agreement with the EBA (European Banking Authority) and EIOPA (European Insurance and Occupational Pensions) conclusions in their respective reports.
The findings from the two surveys are summarized as follows:
- National authorities identified regulatory gaps and issues regarding the existing rules and regulations on crypto-assets, ICOs and DLT. The main concern is to clear up financial instruments and the legal nature of crypto-assets. The National Competent Authorities (NCAs) assured ESMA’s Crypto-Assets Advice that specific tokens are financial instruments and are subjected to the full attendant regulation, while the ones that are not should be subject to the slightest level of regulation.
- Included in the findings of the surveys was also the need for more transparency around the governance and risk management processes related to cyber security and cloud outsourcing. Legislative improvements related to Information and Communication Technology risk management requirements in the EU financial sector and the Joint ESA Advice consist another key point of the surveys. In particular, the costs and benefits of a coherent cyber flexibility testing framework for significant market participants and infrastructures within the EU financial sector are the subjects that need to be dealt with.
- Innovation facilitators and authorising approaches for innovative Fintech business models are interconnected. Innovation facilitators particularly influence the mapping approaches applied to FinTech businesses and identifying the areas where the legislation and licensing requirements need changes. What is also affected by innovation facilitators and especially regulatory sandboxes is the licensing regime for FinTechs which may diverge from other jurisdictions. Together with EBA and EIOPA, ESMA published the Report for FinTech: Regulatory Sandboxes and Innovation Hubs January 2019, to respond to the above. The European Forum of Innovation Facilitators also established in April 2019 aims at fostering concurrence in this area.
- The need for an EU wide holistic crowdfunding regime and, for crowdfunding based on non-MiFID II instruments, consists the reason for ongoing discussions. The regulation of crowdfunding service providers is under scrutiny by the European Parliament and the Council and is expected to facilitate a level playing field for cross-border service providers.
The report addresses one of the five action points of the EC FinTech Action plan, namely the mandate of ESMA “to map current authorizing and licensing approaches for innovative fintech business models in Europe.”