The European Commission, executive branch of the European Union (EU), has adopted a new Digital Finance Package which includes digital finance and retail payments strategies as well as legislative proposals on crypto-assets.

The package is aimed at boosting Europe’s competitiveness and innovation in the financial sector. It will give consumers more choice and opportunities in financial services and modern payments, while at the same time ensuring consumer protection and financial stability.

Valdis Dombrovskis, Executive Vice-President of the European Commission said:

“Technology has much more to offer consumers and businesses and we should embrace the digital transformation proactively, while mitigating any potential risks. That’s what today’s package aims to do. An innovative digital single market for finance will benefit Europeans and will be key to Europe’s economic recovery by offering better financial products for consumers and opening up new funding channels for companies.”

The Digital Finance Package consists of a Digital Finance Strategy, a Retail Payments Strategy, legislative proposals for an EU regulatory framework on crypto-assets, and proposals for an EU regulatory framework on digital operational resilience.

A Digital Finance Strategy

The aim of the Digital Finance Strategy is to make Europe’s financial services more digital-friendly and to stimulate responsible innovation and competition among financial service providers in the EU.

It will reduce fragmentation in the digital single market, so that consumers can have access to financial products across borders and that fintech start-ups scale up and grow. It will also ensure that EU financial services rules are fit for the digital age, for applications such as artificial intelligence and blockchain.

Data management is also at the heart of today’s strategy. In keeping with the commission’s broader data strategy, the objective is to promote data sharing and open finance, while maintaining the EU’s high standards on privacy and data protection.

Finally, the strategy aims to ensure a level playing field among providers of financial services, traditional banks or technology companies.

A Retail Payments Strategy

This strategy aims to bring safe, fast and reliable payment services to European citizens and businesses. It will make it easier for consumers to pay in shops and make e-commerce transactions safely and conveniently.

It seeks to achieve a fully integrated retail payments system in the EU, including instant cross-border payment solutions.

This will facilitate payments in euro between the EU and other jurisdictions and promote the emergence of home-grown and pan–European payment solutions.

Legislative proposals on crypto-assets

The commission has proposed for the first time new legislation on crypto-assets.

The ‘Regulation on Markets in Crypto Assets’ (MiCA) aims to boost innovation while preserving financial stability and protecting investors from risks. This will provide legal clarity and certainty for crypto-asset issuers and providers.

The new rules will allow operators authorised in one member state to provide their services across the EU (passporting). Safeguards include capital requirements, custody of assets, a mandatory complaint holder procedure available to investors, and rights of the investor against the issuer.

Issuers of significant asset-backed crypto-assets (so-called global ‘stablecoins’) would be subject to more stringent requirements (e.g. in terms of capital, investor rights and supervision).

The commission is also proposing a pilot regime for market infrastructures that wish to try to trade and settle transactions in financial instruments in crypto-asset form.

The pilot regime represents a so-called ‘sandbox’ approach – or controlled environment – which allows temporary derogations from existing rules so that regulators can gain experience on the use of distributed ledger technology in market infrastructures, while ensuring that they can deal with risks to investor protection, market integrity and financial stability.

The intention is to allow companies to test and learn more about how existing rules fare in practice.

Legislative proposals on digital operational resilience

Technology companies are becoming more and more important in the area of finance, both as IT providers for financial firms, as well as providers of financial services themselves.

The proposed ‘Digital Operational Resilience Act’ (DORA) aims to ensure that all participants in the financial system have the necessary safeguards in place to mitigate cyber-attacks and other risks.

The proposed legislation will require all firms to ensure that they can withstand all types of Information and Communication Technology (ICT) – related disruptions and threats. The proposal also introduces an oversight framework for ICT providers, such as cloud computing service providers.

Full details on the Digital Finance Package are available here.

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