The future of the financial sector is digital. In the past eight years, the digital financial sector has been growing at such a pace that it is no longer composed only of start-ups but also includes companies with a strong market position, offering a variety of services and operating on a regional or even global scale1. As a result, the digital transformation brought about by financial technology is gradually displacing established business models and practices in the financial sector.
Definition
Financial Technology ("FinTech") is a commercial term, widely used to describe the emergence of commercial services at the intersection between digital technology and financial services.
According to the European Commission’s definition in the 2018 FinTech Action Plan, financial technology is described as "technology-enabled in financial services that could result in new business models, applications, processes or products and could have an associated material effect on financial markets and institutions and how financial services are provided". Similar to Fintech is the term "digital financial services", which is used by the European Commission in the 2020 Digital Finance Package, which describes the digital transformation of the financial sector and is more relevant to the legal concepts of finance law.
Regulatory Developments at EU level
The regulation of financial technology has become the focus of legislative developments at European Union level. As early as 2018, the European Commission adopted the FinTech Action Plan with the aim of making Europe a global hub of financial technology with the specific objectives of (a) fostering innovative FinTech business models across the EU, (b) supporting digital transformation, and (c) enhancing the security of the financial sector2.
With the 2020 Digital Finance Package the European Commission now aims to establish the EU at the global forefront of innovation in the financial sector, making FinTech a driver of the green and digital transition as set out in the European Green Deal3 and the Commission's Strategy for Europe's Digital Future4.
The Digital Financial Sector Package consists of the following legislative initiatives of the Commission:
· A Strategy for Digital Finance5.
· The Proposal for a Regulation on Markets in Crypto-assets and amending Directive (EU) 2019/19376.
· The Proposal for a Regulation on a pilot regime for market infrastructures based on distributed ledger technology («DLTR»)7.
· The Proposal for a Regulation on digital operational resilience for the financial sector («DORA»)8.
· The Proposal for a Directive amending Directives for Financial Services 2006/43/ EC, 2009/65/EC, 2009/138/EU, 2011/ 61/EU, EU/2013/36, 2014/65/EU, (EU) 2015/2366 and EU/2016/23419.
· A Retail Payments Strategy for the EU10.
The European Strategy for the Digital Finance Sector
The Commission Strategy for the development of the European digital financial sector is founded into four main pillars:
· First, the removal of any barriers to the digital single market for financial services, among others through the revision of the e-IDAS Regulation to implement an interoperable cross-border framework for digital identities and the extension of the passporting and one-stop-shop authorization regimes to all categories of regulated institutions.
· The accommodation of digital innovation by introducing an unprecedented EU legislative framework for cryptocurrencies.
· The encouragement of data-driven innovation by facilitating digital access to all regulated financial information in real time, the adoption of a European strategy for supervisory data through RegTech and SupTech tools and a new open banking legislative framework promoting data sharing between payment service providers.
· The promotion of digital transformation in the financial sector based on the "same business, same risks, same rules" principle for the proportionate regulation of the FinTech industry, the review of the EU Directives on payment services and e-money, the reform of the framework to ensure the protection of end-users of the digital financial sector and the new framework to strengthen digital operational resilience.
The MiCA Regulation for Crypto-Asset Markets
The Commission Proposal for a Regulation on Crypto-asset Markets ("MiCA") will apply to (i) crypto-asset service providers, (ii) asset-backed digital currency issuers, and (iii) issuers of digital e-money.
A 'crypto-asset' is defined in the MiCA as any digital representation of value that can be transferred and stored electronically, using distributed ledger or similar technologies. The Proposed Regulation will regulate digital asset-referenced tokens, digital electronic money tokens and digital utility tokens. Cryptocurrencies that are classified as financial instruments or electronic money will be outside the scope of the MiCA.
Crypto-asset services are defined under MiCA as (a) the custody and administration of crypto-assets on behalf of third parties; (b) the operation of a trading platform for crypto-assets; (c) the exchange of crypto-assets for fiat currency that is legal tender; (d) the exchange of crypto-assets for other crypto-assets; (e) the execution of orders for crypto-assets on behalf of third parties; (f) placing of crypto-assets; (g) the reception and transmission of orders for crypto-assets on behalf of third parties (h) providing advice on crypto-assets.
Under the provisions of the MiCA, issuers will have the right to offer their cryptocurrencies to the public or seek admission on a trading platform within the EU on the condition that they fulfil their obligations under the Proposed Regulation. Such obligations include, inter alia, obtaining prior authorisation, the obligation to establish a crypto-asset white paper and to notify the competent authorities of such white paper, as well as obligations relating to prudential supervision, financial stability and conduct regulation. The Proposed MiCA Regulation also imposes horizontal requirements on all crypto service providers, such as prudential safeguards, organisational requirements, rules on the safekeeping of crypto-assets, conflict of interest rules, rules on outsourcing and requirements to prevent abuse of markets.
Competent authorities have the power to designate digital currencies as significant and impose additional obligations, revoke licenses, suspend or prohibit crypto-asset offerings, require additional information to be included in the crypto-asset white paper or make public that issuers or providers are not complying with the MiCA.
The DLTR Proposal on a pilot regime in the DLT markets
DLTR is the twin pillar of MiCA for the regulation of crypto-assets on multilateral trading facilities and securities settlement systems based on distributed ledger technologies.
The purpose of the Proposed Regulation is to provide legal certainty and flexibility to firms wishing to operate in a DLT market infrastructure by establishing uniform requirements for their operation. Along these lines, the DLTR establishes the conditions for the operation of DLT market infrastructures, relevant licensing regimes and rules of supervision along with rules for the cooperation between supervisory authorities and the ESMA. The scope of application of this Directive is limited to participants in DLT markets (investment firms, market operators or central securities depositories - CSDs).
According to the provisions of the Proposed DLTR Regulation, "Distributed Ledger Technology" or "DLT technology" is a category of technologies that support the distributed registration of encrypted data. "DLT Securities" means securities within the meaning of Article 4(1)(44)(a) and (b) of Directive 2014/65/EU ("MiFID II") that are issued, registered, transferred, and stored using DLT. Finally, "DLT market infrastructure" is either a "DLT multilateral trading facility" or a "DLT securities settlement system".
The DLTR will establish requirements for Multilateral Trading Facilities (“DLT MTFs”) and Central Securities Depositories (“CSDs”) similar to those applicable to Multilateral Trading Facilities under the MiFID II Directive, with certain exceptions appropriate for DLT-based markets. The proposed Regulation also introduces additional requirements to address new types of risks arising from the use of DLT technology. It also provides for the requirement of prior authorisation to operate a DLT MTF and a DLT securities settlement system and sets out obligations for DLT market infrastructures to inform supervisors and the ESMA in case of changes to the information provided upon authorisation.
In addition, competent supervisory authorities, in consultation with ESMA, acquire the powers to impose obligations on DLT markets to take corrective measures and ensure the protection of investors, market integrity and financial stability.
Finally, a Proposed Directive, accompanying the DLTR, will set in force amendments on the definition of "financial instrument" in the MiFID II Directive to include financial instruments issued using DLT technologies, and rules for the regulation of multilateral trading facilities using DLT technology11.
The Regulation on Digital Operational Resilience (“DORA”)
The proposed Regulation on Digital Operational Resilience for the Financial Sector upgrades the obligations of supervised institutions to address ICT risks. Under DORA, the term "digital operational resilience" refers to the capacity of financial institutions to shape, guarantee and audit their technology-driven operational integrity by ensuring, directly or indirectly through the use of services from third-party ICT providers, the full range of ICT capabilities required to meet the security of the network and information systems used by such entities.
The DORA Proposal will impose extensive horizontal requirements on supervised institutions, including, inter alia, requirements in relation to governance and organisation, ICT risk management requirements, obligations to report ICT-related incidents, obligations for the testing of digital operational resilience, requirements to ensure proper risk monitoring of third-party ICT providers and obligations to share information between financial institutions in relation to cyber-attacks.
The Proposed Regulation extends the scope and the framework of its requirements to third party ICT service providers, which are defined as undertakings providing digital and data services, including providers of cloud computing services, software, data analytics services, data centers, with the exception of hardware and electronic communication service providers.
Legislative and Regulatory Developments in Greece
Digital transformation and the integration of technology firms into the financial ecosystem are also having an impact on the field of regulation. On the one hand, they increase the operational risks of supervised institutions and, on the other hand, create new needs to ensure financial stability, consumer protection, market integrity and free competition. On the other hand, the new business models of digital financial services require a level playing field between financial institutions and FinTech firms based on the principle of 'same business, same risks, same rules'. In addition, the development of the digital financial sector in the EU requires the removal of fragmentation in the digital single market for the cross-border development of digital financial services. Furthermore, in the new environment, digital innovation and the exchange of financial data are increasingly emerging as independent regulatory objectives. Finally, rapid market developments render necessary the acceleration of the cycles of regular review and adaptation of financial legislation to new conditions.
In the new regulatory environment, the Greek supervisory authorities have started to re-position themselves. In 2019, the Bank of Greece has introduced the FinTech Innovation Hub as a communication channel between the Authority and FinTech firms to submit and respond to requests for information and guidance on the supervisory and regulatory framework for financial technology services, having already successfully responded to over 60 such requests12. In 2021, the Bank of Greece also established the Protected Regulatory Environment for Financial Technology ("Sandbox"), a newly established regulatory regime, governed by the Executive Committee Act 189/1/14-05-2021, which offers financial technology companies (FinTechs) a protected environment in which they can test their innovative financial proposals for a specific period of time under the guidance and in direct cooperation with the regulator13.
In parallel, the Greek Securities and Exchange Commission also established in 2019 a FinTech Innovation Hub with the objectives of providing support to financial technology service providers to get to grips and facilitate their compliance with the regulatory framework, to interact with the Authority, to support entrepreneurship in the financial sector and to identify any possible areas in need of regulatory reform14. In addition, by its Decision 5/898/3.12.2020 (Government Gazette 5744/B/28-12-2020) the Authority established the register of virtual currency service providers and set the rules for its operation.
Subsequently, the Greek Competition Commission has recently launched a sector inquiry into Financial Technologies (2020-2021) in order to investigate in depth the status of competition in financial markets, with the aim of, inter alia, (a) defining and mapping FinTech markets, (b) examining the interoperability between digital platforms as possible means of creating barriers to entry, (c) the use of technical standards and standardization agreements as means of anticompetitive practice; (d) the use of mechanisms for granting access to data in a way that may lead to exclusion of competitors; (e) any use of algorithms as a means of coordinating and harmonizing behaviour and pricing policies15.
The entry into force of the EU digital finance package will set out new challenges for the Greek legislature and national supervisory authorities, by raising the bar for the facilitation of financial innovation and rendering necessary a comprehensive national strategy for the development of the Greek digital financial sector.
[1] EY (2019). Global FinTech Adoption Index 2019, available: https://www.ey.com/en_gr/ey-global-fintech-adoption-index .
[2] European Commission (2018). Communication to the European Parliament, the Council, the European Central Bank, the European Economic and Social Committee of the Regions, FinTech Action Plan: For a more competitive and innovative European financial sector, Brussels 8.3.2018, COM/2018/0109 final.
[3] European Commission (2019). Communication - The European Green Deal Brussels, 11.12.2019 COM (2019) 640 final, available: https://eur-lex.europa.eu/resource.html?uri=cellar:b828d165-1c22-11ea-8c1f-01aa75ed71a1.0002.02/DOC_1&format=PDF
[4] European Commission (2020). Communication - Shaping Europe's digital future, Brussels, 19.2.2020 COM (2020) 67 final, available: https://ec.europa.eu/info/sites/default/files/communication-shaping-europes-digital-future-feb2020_en_3.pdf
[5] European Commission (2018). Communication to the European Parliament, the Council, the European Central Bank, the European Economic and Social Committee of the Regions, FinTech Action Plan: For a more competitive and innovative European financial sector, Brussels, 24.9.2020, COM (2020) 591 final
[6] Brussels, 24.9.2020, COM (2020) 593 Final
[7] Brussels, 24.9.2020, COM (2020) 594 Final
[8] Brussels, 24.9.2020, COM (2020) 595 Final
[9] Brussels, 24.9.2020, COM (2020) 596 Final
[10] Brussels, 24.9.2020, COM (2020) 592 Final
[11] See. Proposal for a Directive of the European Council and of the Council amending Directives 2006/43/EC, 2009/65/EC, 2009/138/EU, 2011/61/EU, 2011/2013/36, 2014/65/EU, (EU) 2015/2366 and EU/2016/2341, COM/2020/596 final.
[12] The official website of the BoG's Innovation Hub is available at the following link: https://www.bankofgreece.gr/kiries-leitourgies/epopteia/komvos-kainotomias-fintech
[13] The official website of the BoG's Organised Supervisory Environment for Financial and Economic Technology is available at the following link: https://www.bankofgreece.gr/kiries-leitourgies/epopteia/prostateymeno-kanonistiko-perivallon .
[14] The official website of the Innovation Hub of the Hellenic Capital Market Commission is available at the following link: https://www.bankofgreece.gr/kiries-leitourgies/epopteia/komvos-kainotomias-fintech .
[15] More information on the Financial Technologies Sector Inquiry can be found on the Competition Commission's website: https://www.epant.gr/enimerosi/kladiki-erevna-stis-xrimatooikonomikes-texnologies-fintech.html
