A brief run-through of the European Union’s Digital Finance Package
The Digital Finance Package, which includes a digital finance strategy, a renewed retail payments strategy and legislative proposals on (i) crypto-assets; and (ii) digital resilience, was adopted by the European Commission in 2020. This package seeks to ensure that the European Union (EU) is fit for the digital age by identifying four priorities which guide EU actions to promote digital transformation until 2024:
Priority One
To tackle fragmentation in the Digital Single Market for financial services to enable European cross-border consumer access and help European financial firms’ scale up their digital operations
By 2024, the EU is targeting to implement a sound legal framework enabling the use of interoperable digital identity solutions which should render customer onboarding much quicker and easier.
With this priority in mind, the strategy points towards achieving more harmonisation in the fields of Anti-Money Laundering (AML) and Combatting the Financing of Terrorism (CFT). Indeed, the revised framework for electronic identification and trust services for electronic transactions (e-IDAS Regulation) seeks to enhance trust in electronic transactions in the internal market by providing a common foundation for secure electronic interaction between citizens, businesses and public authorities.
Priority Two
Adapting the EU regulatory framework to facilitate digital innovation
By 2024, the EU seeks to have in place a comprehensive framework enabling the uptake of Distributed Ledger Technology (DLT) and crypto-assets in the financial sector, while also addressing the risks related to these technologies.
The legislative proposals on crypto-assets (MiCA proposal) and the wider use of DLT in capital markets have the following objectives: (i) to achieve legal certainty; (ii) to support innovation, (iii) to instil appropriate levels of consumer and investor protection and market integrity, and (iv) to ensure financial stability.
Priority Three
Promoting data-driven innovation in finance by establishing a common financial data space
The Commission has pointed out the need for better access to data and data sharing within the EU and aims to help integrate European capital markets, channel investments into sustainable activities, support innovation and bring efficiencies for consumers and businesses.
The aim is that by 2024:
- Disclosures of information requiring public release under EU financial services legislation will be standardised and through machine-readable formats. As part of the Capital Markets Union Action Plan, the Commission will support the development of an EU infrastructure and interoperability to facilitate access to all publicly available disclosure relevant to capital markets;
The necessary conditions to enable the use of innovation technologies will be put in place for supervisory reporting by regulated entities and supervision by authorities, also promoting the sharing of data between supervisory authorities;
An open finance framework should be in place in the EU. Indeed, the upcoming Data Act, and Digital Services Act show a focus on data access. Similarly, the revised Payment Services Directive (PSD2) is an important step towards the sharing and use of customer-permissioned data by banks and third-party providers to create new services.
Priority Four
Addressing the challenges and risks associated with digital transformation and enhancing digital operational resilience of the financial system
The EU aims to adapt prudentially and conduct regulation as well as supervision, to be future-proof as the financial ecosystem evolves. With the increase of technology companies entering financial services, the expectation is that risks will consequently also increase. Accordingly, the focus of this priority is to address all the risks which may ensue both at the consumer level and also in the broader context.
In this light, the recently adopted Digital Operational Resilience Act (DORA) seeks to increase the level of harmonisation of the various digital components and ensure that the EU financial sector is resilient when faced with severe operational disruption and cyber-attacks.
Of course, as part of its strategy, the Commission seeks to promote the new opportunities that digital finance offers to consumers, while simultaneously ensuring consumer protection. In this light, the strategy expresses the importance of complying with data protection rules, particularly the General Data Protection Regulation.
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