EUROPEAN

COMMISSION

Brussels, 24.9.2020
COM(2020) 591 final

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN

PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL
COMMITTEE AND THE COMMITTEE OF THE REGIONS

on a
Digital Finance Strategy for the EU

EN EN
 1. Context
The future of finance is digital: consumers and businesses are more and more accessing
financial services digitally, innovative market participants are deploying new technologies,
and existing business models are changing. Digital finance has helped citizens and businesses
tackle the unprecedented situation created by the Covid-19 pandemic. For example, online
identity verification has enabled consumers to open accounts and use multiple financial
services at a distance. A growing proportion of in-store payments are now digital and
contactless, and on-line purchases (e-commerce) have significantly increased. Fintech
solutions have helped to broaden and speed up access to loans, including loans supported by
government in response to the Covid-19 crisis. Ensuring safe and reliable operation of digital
infrastructures has also become more important, as more people access financial services
online and financial sector employees themselves work remotely.
If there was still any doubt it is now clear: digital finance has a lot to offer, and the people
and businesses of Europe are ready for it.
Europe must take full advantage of this in its recovery strategy to help repair the social and
economic damage brought by the pandemic.1 Digital technologies will be key for relaunching
and modernising the European economy across sectors. It will move Europe forward as a
global digital player. At the same time, users of financial services must be protected against
risks stemming from increased reliance on digital finance.
Supporting the digital transition in the EU is a key priority for the Commission, as set out
earlier this year2 and more recently in the context of the recovery plan3. Europe’s financial
sector can build on many innovative projects across Member States, and on its leading role in
areas such as digital payment technologies. Embracing digital finance will contribute to the
overall digital transformation of our economy and society. This would bring significant
benefits to both consumers and businesses.
Against the background of key trends in digital innovation (section 2), this communication
sets out a strategic objective for digital finance in Europe (section 3), and four priorities and
related actions we intend to take to enable consumers and businesses to enjoy the benefits of
digital finance while also mitigating risks (section 4). This Communication builds on the
2018 FinTech Action Plan,4 and the work of the European supervisory authorities (ESAs). It
has also been informed by responses to our public consultation and the digital finance
outreach events held in the first half of 20205, the report on digital finance from the European

1
Communication from the Commission to the European Parliament, the Council, the European Economic and
Social Committee and the Committee of the Region, Europe's moment: Repair and Prepare for the Next
Generation, COM/2020/456 final, 27.05. 2020
2
Communication from the Commission to the European Parliament, the Council, the European Economic and
Social Committee and the Committee of the Region, Shaping Europe’s Digital Future, COM(2020) 67 final,
19.02.2020
3
Communication from the Commission to the European Parliament, the Council, the European Economic and
Social Committee and the Committee of the Region, Europe's moment: Repair and Prepare for the Next
Generation, COM/2020/456 final
4
Communication from the Commission to the European Parliament, the Council, the European Economic and
Social Committee and the Committee of the Region on a FinTech Action plan, COM(/2018)/109 final,
08.03.2018
5
https://ec.europa.eu/info/publications/digital-finance-outreach-2020_en

1
Parliament6, the report of the expert group on regulatory obstacles to financial innovation
(ROFIEG),7 the recommendations of the Capital Markets Union High-Level Forum,8and the
SME strategy for a sustainable and digital Europe.9
Payment services play a key role among digital financial services, being at the cutting edge of
innovation and instrumental to support the digital economy. Digital payment solutions enable
individuals and companies to transact safely and efficiently. They are indispensable for
paying in shops and in e-commerce, settling bills, repaying loans or mortgages, transferring
money, paying salaries or pensions. As such, they require specific policy measures which are
developed in the communication entitled “A Retail Payments Strategy for the EU”, published
together with this communication.10

2. The background: digital innovation trends

The digital transformation of the economy has changed innovation and business models
including in financial services.
Innovation increasingly takes a digital form, making it easier for firms to grow. To an
ever-increasing extent, innovation implies new products, processes or business models
enabled by digital technologies. From having a mere support function, information
technology (IT) systems in combination with appropriate software have become a core pillar
of business activities for many firms. This is because digitalisation offers substantial new
opportunities, as digital networks and data services generally facilitate economies of scale,
enabling the provision of more qualitative services at a lower cost .
Innovation cycles are accelerating, becoming more open and collaborative. Digital
technologies and applications are increasingly built in a modular way, communicating with
each other via application programming interfaces (APIs). They make it possible to tailor
services more closely to customer demand. They also provide more opportunities for
experimentation and collaboration between various actors. This may have a number of
consequences for the way financial services are provided.
Data is becoming a key asset for innovation along with IT infrastructure. Data has
become more important than ever for financial services. The availability of digital data
6
Report with recommendations to the Commission on Digital Finance: emerging risks in crypto-assets -
regulatory and supervisory challenges in the area of financial services, institutions and markets”
(2020/2034(INL)),
https://oeil.secure.europarl.europa.eu/oeil/popups/ficheprocedure.do?reference=2020/2034(INL)&l=en
7
On 13 December 2019 the Expert Group on Regulatory Obstacles to Financial Innovation (ROFIEG), set up
by the European Commission in June 2018, published its recommendations on how to create an accommodative
framework for technology-enabled provision of financial services.
https://ec.europa.eu/info/publications/191113-report-expert-group-regulatory-obstacles-financial-innovation_en
8
https://ec.europa.eu/info/publications/cmu-high-level-forum_en
9
Communication from the Commission to the European Parliament, the European Council, the Council, the
European Economic and Social Committee and the Committee of the Regions on An SME Strategy for a
sustainable and digital Europe, COM(2020)203, 10.03.2020
https://ec.europa.eu/info/sites/info/files/communication-sme-strategy-march-2020_en.pdf
10
Communication from the Commission to the European Parliament, the European Council, the Council, the
European Economic and Social Committee and the Committee of the Regions on a retail payments strategy for
Europe, COM(2020)592

2
enables more accurate prediction of future events, thereby allowing for the provision of
bespoke services. Analysing a merged dataset provides more insights than analysing each
dataset separately. The economic benefits derived from a specific dataset are higher when
multiple parties have simultaneous access to it. In addition, use of associated technologies is
necessary to maximise data value. IT infrastructure today increasingly sits in the cloud,
offering a high degree of operational flexibility and facilitating access to advanced data
processing technology. These developments also raise important new issues for protecting
consumers and a responsible use of their data.
At the same time, innovation is changing market structures. Europe is home to many
successful Fintech start-ups. Incumbent firms are fundamentally overhauling their business
models, often in cooperation with Fintech companies. Technology companies both large
(“BigTech”) and small are increasingly active in financial services. These developments are
changing the nature of risks to consumers, users and financial stability and they may also
have a significant impact on competition in financial services.

3. Our strategic objective: to embrace digital finance for the good of consumers and
businesses
Europe and its financial sector must embrace these trends and all the opportunities
offered by the digital revolution.
Europe must drive digital finance with strong European market players in the lead.
Our aim is to make the benefits of digital finance available to European consumers and
businesses.
Europe should promote digital finance based on European values and a sound
regulation of risks.
Our consultations with stakeholders across Europe have shown broad and strong support for
this objective, on manifold grounds:
 Embracing digital finance would unleash innovation and create opportunities to
develop better financial products for consumers including for people currently
unable to access financial services. It unlocks new ways of channelling funding to
EU businesses, in particular SMEs.
 Boosting digital finance would therefore support Europe’s economic recovery
strategy and the broader economic transformation. It would open up new channels
to mobilise funding in support of the Green Deal and the New Industrial Strategy
for Europe.

3
  As digital finance cuts across borders, it also has the potential to enhance financial
market integration in the Banking Union and the Capital Markets Union11 and
thereby to strengthen Europe’s Economic and Monetary Union.
 Finally, a strong and vibrant European digital financial sector would strengthen
Europe’s ability to retain and reinforce our open strategic autonomy in financial
services and, by extension, our capacity to regulate and supervise the financial system
to protect Europe’s financial stability and our values.
To achieve this strategic objective, the next section presents four priorities that will guide our
actions for the remainder of this mandate and a set of accompanying measures.

4. Four priorities for the digital transformation of the EU financial sector

In light of the trends and objectives outlined above, and as supported by the vast majority of
respondents participating in the public consultation underpinning this strategy, 12 four
priorities will guide EU actions to promote digital transformation up to 2024.
The first priority is to tackle fragmentation in the Digital Single Market for financial
services, thereby enabling European consumers to access cross-border services and
help European financial firms’ scale up their digital operations (4.1). Many firms have
confirmed that scaling up across borders is essential for them, because on-line services are
costly to develop but cheap to reproduce and often require deployment at considerable scale.
A larger potential market across borders makes it easier to raise the funds needed to develop
such services. It gives consumers genuine access to cross border services. Firms achieving
scale may also be able to provide such services at a lower price and higher quality.
The second priority is to ensure that the EU regulatory framework facilitates digital
innovation in the interest of consumers and market efficiency (4.2). Innovations based on
or making use of distributed ledger technology (DLT) or artificial intelligence (AI) have the
potential to improve financial services for consumers and businesses. The regulatory
framework for financial services should ensure that they are used in a responsible way, in line
with EU values. More broadly, faster, more open and collaborative innovation cycles call for
regular examination of and adjustments to EU financial services legislation and supervisory
practices, to ensure that they support digital innovation and remain appropriate and relevant
in evolving market environments.
The third priority is to create a European financial data space to promote data-driven
innovation, building on the European data strategy, including enhanced access to data
and data sharing within the financial sector (4.3).13 The EU has ensured that companies
including financial firms publish comprehensive financial and non-financial information on

11
Communication from the Commission to the European Parliament, the Council, the European Economic and
Social Committee and the Committee of the Regions - A Capital Markets Union for people and businesses-new
action plan, COM(2020)590
12
https://ec.europa.eu/info/consultations/finance-2020-digital-finance-strategy_en
13
Communication from the Commission to the European Parliament, the European Council, the Council, the
European Economic and Social Committee and the Committee of the Regions on A European Data Strategy,
COM(2020) 66 final, 19.02.2020

4
their operations and products. It has also led the way in opening up the sharing of data on
payments accounts as part of the revised Payment Services Directive. Further steps towards
enhanced data sharing and openness across and within sectors, in compliance with data
protection and competition rules, will enable the financial sector to fully embrace data-driven
innovation. This will encourage the creation of innovative products for consumers and
businesses, and will support broader policy objectives, such as the as the creation of a single
market for data. It will also contribute to facilitating access to data needed to channel funding
in support of sustainable investments.
The fourth priority is to address new challenges and risks associated with the digital
transformation (4.4). Financial services migrate to digital environments with fragmented
ecosystems, comprising interconnected digital service providers falling partially outside
financial regulation and supervision. Digital finance may therefore make it more challenging
for the existing regulatory and supervisory frameworks to safeguard financial stability,
consumer protection, market integrity, fair competition and security. To ensure that digital
finance’s enable better financial products for consumers and businesses these risks must be
addressed. The Commission will therefore pay particular attention to the principle “same
activity, same risk, same rules”, not least to safeguard the level playing field between
existing financial institutions and new market participants.
Across these four priorities, the Commission will pay particular attention to promoting the
new opportunities that digital finance offer to consumers and to protecting consumers
wherever appropriate. This will notably be in due compliance with data protection rules, in
particular the General Data Protection Regulation14 (GDPR).
The Commission also remains committed to continue working closely with our
international partners, since the benefits of digital finance are best harnessed if their
deployment is based on international principles and standards.

4.1.Removing fragmentation in the Digital Single Market

The digital finance strategy is designed to build on the opportunities offered by the Single
Market, to offer consumers and firms the benefits of digital financial services. A well-
functioning Single Market for digital financial services will help improve access to financial
services for consumers and retail investors in the EU through more innovative, diverse and
inclusive banking, investment and insurance services.
 Enabling EU-wide interoperable use of digital identities
By 2024, the EU should implement a sound legal framework enabling the use of
interoperable digital identity solutions which will enable new customers to access
financial services quickly and easily (“on boarding”). This framework should be based
on more harmonised anti-money laundering (AML) and counter-terrorism financing
(CTF) rules and a revised framework for electronic identification and trust services for

14
Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection
of natural persons with regard to the processing of personal data and on the free movement of such data, and
repealing Directive 95/46/EC (General Data Protection Regulation)

5
electronic transactions (e-IDAS Regulation)15. It should enable customer data to be
reused subject to informed customer consent, which is based on full transparency about
the consequences and implications of such reuse.
The recent lockdown has highlighted just how essential digital financial services that function
smoothly are for consumers and businesses interacting remotely. However, much more needs
to be done before remote ‘on-boarding’ of financial services will work effectively and
seamlessly. This needs to work both in domestic and cross-border settings, in full compliance
with AML/CTF requirements and with a view to facilitating compliance with other regulatory
on-boarding requirements, for example to assess a customer’s suitability for certain
investment products. The Commission will facilitate financial service providers’ safe remote
on-boarding of customers across the EU in three steps.
First, the Commission is today inviting the European Banking Authority (EBA) to develop
guidelines in close coordination with the other European Supervisory Authorities by Q3
2021. These aim to ensure greater convergence on the elements related to identification and
verification needed for on-boarding purposes, and on the manner and extent to which
financial service providers are allowed to rely on customer due diligence (CDD) processes
carried out by third parties, including other financial service providers. In parallel, the
Commission will engage with the European Data Protection Board (EDPB) to clarify all data
protection aspects in the context of reusing ‘on-boarding’ information for other purposes (e.g.
‘on-boarding’ with another provider, access to other non-banking services).
Second, as part of the upcoming legislative proposals for a new AML/CTF framework, the
Commission will further define and harmonise CDD requirements to facilitate the use of
innovative technologies and allow for seamless cross-border operation, without the need to
apply different processes or comply with additional requirements in each Member State. This
will make it easier to identify customers and check their credentials ), while ensuring full
compliance with the AML/CTF risk-based approach. For instance, this could be done by
stating what ID documents are needed to establish a person’s identity, and by clarifying
which technologies can be used to check ID remotely. The Commission review of AML/CTF
rules will also aim to propose:
 improving and clarifying access to data to enhance financial service providers’ ability
to authenticate the identity of the customer;
 further specifying, by means of technical standards, aspects relating to detailed
identification and authentication elements for on-boarding purposes; and
 further developing, by means of technical standards, reliance on third parties to meet
CDD requirements, including issues associated with liability , transparency and
ethical use.
These technical standards would build on the EBA guidelines mentioned under the first point.
Finally, as part of the planned review of the e-IDAS Regulation, the Commission is
considering improving its effectiveness, extending its application to the private sector and
promoting trusted digital identities for all Europeans. The revision of the Regulation will
15
Regulation (EU) No 910/2014 on electronic identification and trust services for electronic transactions in the
internal market and repealing Directive 1999/93/EC, OJ L 257, 28.8.2014, p. 73–114.

6
provide a future-proof regulatory framework supporting an EU-wide, simple, trusted and
secure system for managing identities in the digital space.
Building on these measures and in the context of its work on open finance (see section 4.3),
the Commission intends to enable the integration of further elements so that digital identities
can be used, for example, for ‘on-boarding’ with another financial institution. This could for
example include elements linked to investor suitability or customer credit profile.
 Facilitating the scaling up of digital financial services across the Single Market
By 2024, the principle of passporting and a one-stop shop licensing should apply in all
areas which hold strong potential for digital finance. Firms should be able to rely on
close cooperation between national supervisory innovation facilitators within the
European Forum of Innovation Facilitators (EFIF), and a new EU digital finance
platform.
A long-standing principle in the single market is that consumers and businesses should have
genuine access to cross-border services provided by firms established and supervised in
another Member State in line with commonly agreed rules (“passporting”). Any remaining
obstacles to cross-border provision of such services should be particularly low for digital
services. However, as highlighted by many respondents to the public consultation, EU fintech
firms often can only provide services only within their own country or restrict access to their
digital platforms to customers located in a limited list of EU jurisdictions. The main reasons
for that are that regulatory framework differs from country to country , entailing
disproportionate compliance costs for operators active in several countries.
The Commission is amending the regulatory framework to introduce the possibility of
passporting in key areas relevant to digital finance. The Crowdfunding Regulation, agreed by
the co-legislators in December 2019 will introduce common rules and passporting for various
types of crowdfunding services, including credit intermediation, and today’s Commission
proposals on crypto-assets will propose common rules and passporting for crypto-asset
issuers and service providers. The Commission will also consider the relevance of
passporting in other areas, for example in the context of examining the prudential regulation
of non-bank lending, with due attention to consumer protection rules (see section 4.4 below).
It will also examine possible ways to enable the certification of technical solutions designed
to help firms meeting their regulatory compliance obligations (“RegTech” 16), support
common approaches in that field, including interoperability. At the same time, the practical
application of passporting requires close cooperation between home and host supervisors to
ensure that commonly agreed rules are enforced and applied consistently. The Commission
encourages the European Supervisory Authorities (ESAs) to continue and step up their work
to promote cooperation and supervisory convergence.
The retail payments strategy furthermore sets out how the Commission intends to tackle a
number of specific regulatory issues in the area of payments, such as existing practices where
foreign IBAN account numbers are refused (“IBAN discrimination”).

16
RegTech: Regulatory Technology is a sub-set of FinTech that focuses on technologies that may facilitate the
delivery of regulatory requirements more efficiently and effectively than existing capabilities

7
Responses to the consultation also show that stakeholders continue to attach great importance
to the work of supervisory innovation facilitators, such as innovation hubs and regulatory
sandboxes, also in a cross-border context. The Commission will work with the ESAs to
strengthen the innovation network provided by the European Forum of Innovation Facilitator
(EFIF)17. It will also promote national innovation facilitators, e.g. through the structural
reform support programme18. In particular, the Commission will work with the EFIF to
ensure that it offers by mid-2021 a procedural framework for launching cross-border testing
and other mechanisms facilitating firms’ interaction with supervisors from different Member
States.
To encourage cooperation between private and public stakeholders, the Commission, in
cooperation with EFIF, will establish a new EU digital finance platform. The new platform
will serve as a channel to interact online and on an ongoing basis with this new digital
finance ecosystem building on the positive feedback received after the digital finance
outreach. It will also offer an interface to the EFIF and to national innovation facilitators and
national e-licensing procedures. Going forward, it could be developed into a broader platform
for cooperation and a data space that could be used by industry or supervisory authorities to
test innovation. The platform will be designed to be eligible for potential funding from the
digital Europe programme which will support the roll–out of collaboration platforms for
mainstreamining digital technologies..
Supervising digital finance requires enhanced cooperation between various authorities. The
EFIF will therefore involve representatives from, for example, the European Data Protection
Board (EDPB), the Commission services responsible for competition enforcement, and
relevant national authorities beyond the financial sector. They will attend EFIF meetings as
observers, to discuss the challenges raised by innovative business models combining financial
and non-financial services.
Supervising digital finance requires significant new skills. The Commission will continue to
help upgrade supervisors’ technical skills, including through the EU Fintech Lab 19. The
Commission also stands ready to design targeted assistance programmes with national
authorities. This could for example be done through the structural reform support
programme20.

Key actions
The Commission will propose in 2021 as part of a broader initiative on AML/CFT to
harmonise rules on customer onboarding and will build on the upcoming review of e-IDAS to
implement an interoperable cross-border framework for digital identities.

17
The EFIF was established further to the January 2019 Joint ESA report on regulatory sandboxes and
innovation hubs which identified a need for action to promote greater coordination and cooperation between
innovation facilitators to support the scaling up of FinTech across the single market
18
The structural reform support programme (SRSP) is an EU programme that provides tailor-made support to
all EU countries for their institutional, administrative and growth-enhancing reforms
19
The EU FinTech Lab was established under the 2018 FinTech action plan and gathers service providers,
financial institutions and supervisors to deep dive into specific technologies or applications.
20
The structural reform support programme (SRSP) is an EU programme that provides tailor-made support to
all EU countries for their institutional, administrative and growth-enhancing reforms

8
The Commission will explore the need to introduce additional harmonised licensing and
passporting regimes, work with the ESAs to strengthen EFIF, and establish an EU
digital finance platform to foster cooperation between private and public stakeholders.

4.2. Adapting the EU regulatory framework to facilitate digital innovation

The purpose of the digital finance strategy is to ensure that the EU regulatory framework for
financial services is fit for the digital age. This includes enabling the use of innovative
technologies and making the framework compatible with prevailing best practice in software
production and deployment. Many respondents to the public consultation took the view that
EU rules should be more technology neutral and innovation friendly, and should be able to
adjust to innovations more rapidly, while continuing to respect all the rules ensuring their
safe and secure functioning and user protection.
 Enabling EU markets in crypto-assets and tokenised financial instruments
By 2024, the EU should put in place a comprehensive framework enabling the uptake of
distributed ledger technology (DLT) and crypto-assets in the financial sector. It should
also address the risks associated with these technologies.
Crypto-assets and their associated blockchains can bring significant opportunities in finance:
potentially cheap and fast payments, especially for cross-border and international
transactions, new funding possibilities for SMEs and more efficient capital markets. Utility
tokens can serve as enablers of decentralised blockchain networks and stablecoins can
underpin machine-to-machine payments in mobility, energy and manufacturing sectors.
However, they also involve risks, and should therefore be properly regulated and supervised.
The Commission is today presenting a legislative proposal 21 to accompany this strategy. The
proposal clarifies the application of existing EU rules to crypto-assets, introduces a pilot
regime for crypto-assets covered by these rules and establishes a new EU legal framework for
crypto-assets that are not covered by these rules, based on a taxonomy of definitions of
different types of crypto-assets. The latter includes utility tokens and dedicated rules to
regulate the particular risks for financial stability and monetary sovereignty linked to asset-
referenced tokens (also known as ‘stablecoins’) used for payment purposes. Additional
interpretative guidance on the application of existing rules will improve regulatory clarity,
enabling the financial sector to reap efficiency gains through wider use of distributed ledger
technology (DLT) in capital markets, while continuing to respect the safety and security rules
and maintaining a high level of user protection.
At the same time, in light of ongoing work carried out by the Basel Committee, the
Commission will consider updating the prudential rules for crypto-assets held by financial

21
Proposal for a Regulation of the European Parliament and of the Council on Markets in Crypto-assets and
amending Directive (EU) 2019/1937, COM(2020) 593 and proposal for a Regulation of the European
Parliament and of the Council on a Pilot Regime for market infrastructures based on distributed ledger
technology - COM(2020)594

9
firms. The Commission will also explore how to leverage DLT to improve capital-raising
operations of SMEs.
Digital technologies also hold potential for central banks to develop central bank digital
currencies as a digital alternative to cash and a catalyst for continued innovation in payments,
finance and commerce. As detailed in the retail payments strategy, the Commission supports
the work of central banks, and in particular, the ECB, to consider issuing a retail central bank
digital currency (CBDC) available to the general public, while safeguarding the legal tender
of euro cash.
Finally, to encourage the development of and investment in low or zero emission DLT and
the Internet of Things, the Commission, working with the platform on sustainable finance,
will aim to integrate these sectors by 2021 in the sustainable finance taxonomy.
 Promoting cooperation and the use of cloud computing infrastructure
Cloud computing makes it far easier to scale up rapidly and flexibly and to shift to a modular
IT architecture that promotes cooperation and fits best with cloud-native digital applications.
To facilitate this and ensure that EU banks and financial services can reap the benefits offered
by the use of cloud services in a highly secure customer-facing environment, the Commission
is today proposing an oversight framework for critical third-party ICT providers to the
financial sector22, such as cloud service providers. In the context of a highly concentrated
market, the Commission proposed in the EU data strategy to launch a European cloud
services marketplace, integrating the full stack of cloud service offering by the end of 2022.
This marketplace will facilitate access to alternative cloud service providers, including in the
financial sector.
The Commission will also support cooperation through a further shift towards activity-based
regulation (see section 4.4 below). Other cloud policy measures that aim at increasing
competition and market fluidity, building on the already available self-regulatory codes of
conduct developed by the industry as regards switching cloud service providers and porting
data are expected to foster cloud adoption in the financial sector. The Commission has
requested the EU cybersecurity agency (ENISA) to develop a cybersecurity certification
scheme for cloud services in conformity with the Cybersecurity Act, which will support trust
in cloud use, notably by financial services and regulators. Further action may include
measures on how to facilitate the migration towards a modular IT architecture and to allow
for collaboration with other players. Such relationships could also be nurtured as part of the
EU Digital Finance platform (see section 4.1 above), bringing together incumbents and new
market entrants.
 Promoting investments in software by adapting prudential rules on intangible assets
Digital transformation requires significant investments in software by the financial industry.
Currently, the prudential treatment of software investments differs across jurisdictions, with
22
Proposal for a Regulation of the European Parliament and the Council on digital operational resilience for the
financial sector and amending Regulations (EC) No 1060/2009, (EU) No 648/2012, (EU) No 600/2014 and
(EU) No 909/2014 - COM(2020)595

10
European banks facing more stringent capital requirements than banks in other jurisdictions.
In order to facilitate the transition towards a more digitalised banking sector, the Commission
will shortly adopt regulatory technical standards currently being developed by the EBA.

 Promoting the uptake of artificial intelligence tools

By 2024, the Commission, working together with the ESAs, aims to ensure clarity as
regards supervisory expectations about how the legislative framework on financial
services should apply to artificial intelligence (AI) applications.
The essential promise of the latest AI tools is that they make prediction more accessible. This
should help firms save on costs. Also, as prediction technology becomes more accurate and
reliable over time, it may lead to more productive business models and new ways to compete.
On the consumer side, the use of AI applications could make it possible for firms to provide
better and more tailored services at lower cost. In some cases, it could also enable people
previously excluded from financial services to access them.
As set out in the White Paper on artificial intelligence, the Commission will promote the use
of AI by proposing significant investments at EU level and put forward a new AI regulatory
framework reflecting our European values.
The overwhelming majority of participants to the public consultation felt that the EU
financial sector needed guidance at EU level on the use of AI applications in finance and their
regulatory treatment. The financial industry referred to the lack of legal clarity about the
impact of EU rules in this context. Customers mentioned the lack of understanding and
transparency about how a particular outcome is obtained, fearing biases and exploitative
profiling, as well as difficulties in contesting AI-based outcomes. Supervisory authorities
referred to the lack of expertise and clarity on how specific EU rules need to be applied (e.g.
as regards explainability of AI models).
As a result, the Commission will invite the ESAs and the ECB to explore the possibility of
developing regulatory and supervisory guidance on the use of AI applications in finance. This
guidance should follow the upcoming proposal for a new regulatory framework for AI
planned in 2021. The European supervisory authorities will also rely on the work they have
recently initiated in this area, including advice by the Expert Group on Digital Ethics set up
by the European Insurance and Occupational Pensions Authority. The European supervisory
authorities should aim to ensure clarity on supervisory expectations and mitigation of risks,
so that AI-based solutions can be applied in the EU financial sector in a safe, sound and
ethical manner. As regards more general challenges related to the use of AI tools in
compliance with GDPR23, or risks of collusive behaviour by means of price-adjusting AI
tools, these will feed into the follow-up process to the Commission’s AI White Paper.
 Ensuring a future proof legislative framework on an on-going basis
The Commission aims to ensure through regular legislative reviews and interpretative
guidance that the EU regulatory framework for financial services neither prescribes nor
23
The consultation highlighted many issues where efficient use of AI tools could be inhibited by such GDPR
principles as data anonymity, the right to be forgotten, rights with respect to automated decision-making rules,
data minimisation and purpose limitation.

11
prevents the use of particular technologies while also ensuring that regulatory
objectives continue to be met.
Regulatory uncertainty hampers innovation in finance, and can also harm consumers or
investors. In addition to the key issues raised in this strategy, the Commission will integrate
aspects of digital finance in all upcoming legislative reviews, wherever relevant.
As digital innovation advances, new regulatory questions are likely to arise. The Commission
will regularly carry out a Digital Finance Outreach to identify emerging issues. On that basis,
it will provide guidance on the interpretation of the EU regulatory framework through
regular interpretative communications. The first interpretative communication to be issued in
2021 will ensure additional clarity on the treatment of crypto-assets, complementing the
relevant Commission legislative proposals.

Key actions
The Commission is proposing today a new EU legislative framework for crypto-assets,
including asset-referenced tokens (also known as ‘stablecoins’) and utility tokens.
Through regular reviews, the Commission will ensure that potential material regulatory
obstacles to innovation stemming from legislation on financial services are removed. It will
regularly provide interpretative guidance on how existing legislation on financial services
is to be applied to new technologies.

4.3. Promoting data-driven innovation in finance by establishing a common financial

data space
In its new data strategy for Europe24, the Commission highlighted the need for better access
to data and data sharing within the EU, creating broader access to public and private data to
the benefits of people, businesses and the broader public interest. As part of these efforts, and
in close connection with activities across other sectors, the Commission aims to set up a
common financial data space through a number of more specific measures set out in this
section. The Commission’s objective is to help integrate European capital markets, channel
investments into sustainable activities, support innovation and bring efficiencies for
consumers and businesses. The Commission will set up a group of data experts in close
cooperation with the ESAs to provide advise on the technical aspects of establishing a
common financial data space.
 Facilitating real-time digital access to all regulated financial information
By 2024, information to be publically released under EU financial services legislation
should be disclosed in standardised and machine-readable formats. As part of its CMU
Action Plan, the Commission will implement EU infrastructure to facilitate access to all
publicly available disclosure relevant to capital markets.

24
Communication from the Commission to the European Parliament, the European Council, the Council, the
European Economic and Social Committee and the Committee of the Regions on A European Data Strategy,
COM(2020) 66 final, 19.02.2020

12
Financial institutions are currently required to make a wealth of financial information public.
In a digital context, the Commission intends to ensure that regulated information is provided
in electronic machine-readable formats. As regards public disclosure, the Commission
intends to ensure that financial information already made available publically by companies
through national registers is considered as high value data sets in the context of the Open
Data Directive. In addition, starting with the proposal on crypto assets, the Commission will
propose legislative amendments to EU financial services legislation requiring public
disclosure to be made systematically available in machine-readable formats. In the context of
the Capital Markets Union, the Commission will support the development of an EU
infrastructure and interoperability to facilitate access to all publicly available disclosures.
This infrastructure will be designed to be eligible for potential funding from the new digital
Europe programme, which will support the development of EU digital capacities to advance
the take up of and accessibility to new technologies.
 Promoting innovative IT tools to facilitate reporting and supervision
By 2024, the EU aims to put in place the necessary conditions to enable the use of
innovative technologies, including RegTech25 and SupTech26 tools, for supervisory
reporting by regulated entities and supervision by authorities. It should also promote
the sharing of data between supervisory authorities. Building on the outcomes of the
fitness check of supervisory reporting requirements27, the Commission, together with the
ESAs will develop a strategy on supervisory data in 2021 to help ensuring that (i) supervisory
reporting requirements (including definitions, formats, and processes) are unambiguous,
aligned, harmonised and suitable for automated reporting, (ii) full use is made of available
international standards and identifiers including the Legal Entity Identifier, and (iii)
supervisory data is reported in machine-readable electronic formats and is easy to combine
and process. This will facilitate the use of RegTech tools for reporting and SupTech tools for
data analysis by authorities.
The Commission also aims to ensure that key parts of EU regulation are accessible to natural
language processing, are machine readable and executable, and more broadly facilitate the
design and implementation of reporting requirements. It will also encourage the use of
modern IT tools for information sharing among national and EU authorities. As a first step in
the domain of machine readable and executable reporting, the Commission has launched a
pilot project for a limited set of reporting requirements.
 Promoting business-to-business data sharing in the EU financial sector and beyond
(open finance)
By 2024, the EU should have an open finance framework in place, in line with the EU
Data Strategy, the upcoming Data Act, and Digital Services Act. This will be
coordinated with the review of the Payment Services Directive.

25
RegTech: Regulatory Technology is a sub-set of FinTech that focuses on technologies that may facilitate the
delivery of regulatory requirements more efficiently and effectively than existing capabilities
26
SupTech: Supervisory Technology is a sub-set of FinTech that uses of innovative technology to support
supervision. It helps supervisory authorities to digitise reporting and regulatory processes
27
https://ec.europa.eu/info/consultations/finance-2017-supervisory-reporting-requirements_en

13
The revised Payment Services Directive (PSD2) marked an important step towards the
sharing and use of customer-permissioned data by banks and third party providers to create
new services (“open finance”). The Commission will launch the review of the Payment
Services Directive in 2021, including an assessment of its scope.
Open finance can lead to better financial products, better targeted advice and improved access
for consumers and greater efficiency in business-to-business transactions. Access to more
customer data would also enable service providers to offer more personalised services that
are better tailored to customers’ specific needs. A balanced regulatory framework for the
sharing of data on financial products will support the financial sector in fully embracing data-
driven finance, and effectively protect data subjects, who must have full control over their
data.
The Commission will therefore propose legislation on a broader open finance framework by
mid-2022. It will build on the upcoming initiative focusing on data access, including the
upcoming Data Act, and the Digital Services Act28. The Commission is already reviewing its
competition policy to ensure that it is fit for the digital age29. In this context, it will also
determine whether sector-specific measures are needed to ensure fair access to platforms for
all financial service providers. As announced in the retail payments strategy, the Commission
will explore initiatives at EU level to address the current issues faced by payment services
providers when trying to access near field communication (NFC) antennas available on
certain mobile platforms (such as phones or tablets) and used for effective contactless
payments. The open finance framework will also build on the initiatives on digital identities
mentioned above.

Key actions
The Commission will amend EU legislation to ensure that publicly disclosed information is
available in standardised and machine-readable formats, and will set up an EU-funded
infrastructure for public disclosure.
The Commission will present a strategy on supervisory data in 2021.
The Commission will present a legislative proposal for a new open finance framework by
mid-2022, building on and in full alignment with broader data access initiatives.

4.4. Addressing the challenges and risks associated with digital transformation
The digital transformation of the financial sector is not without challenges and risks, some of
which are transversal in nature due to the digital environment itself, whilst others are more
specific to the individual policy initiatives set out above.

28
https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12417-Digital-Services-Act-
deepening-the-Internal-Market-and-clarifying-responsibilities-for-digital-services
29
The Commission is currently reviewing the rules applicable to horizontal and vertical agreements, as well as
the Market Definition Notice. Moreover, in June 2020 the Commission launched a public consultation in order
to assess whether a New Competition Tool may be required in order to address structural competition problems
that current competition rules cannot tackle in the most efficient manner. More information on these review
processes can be found in the website for the Directorate General for Competition:
https://ec.europa.eu/competition/consultations/open.html

14
  Safeguarding financial stability, protecting investors and consumers, based on the
“same activity, same risk, same rules” principle
By 2024, the EU prudential and conduct regulation and supervision should be adapted
to be future proof for the new financial ecosystem, including traditional regulated
financial institutions and technology providers offering financial services.
Technology companies – large and small – are increasingly entering financial services, either
directly or indirectly. While many technology providers are now offering payments and
related services, respondents to the Commission’s public consultation expect that online
provision of other financial services, such as loans, insurance, and asset management for
consumers and businesses develops further. Large technology companies also often act as
intermediaries by bundling various services and products with associated financial services,
such as payments, financing or insurance and thus become marketplaces for financial
services. They can scale up financial services quickly across their large user bases and
radically change market structures, sometimes adversely affecting competition. Finally, large
technology companies also provide many of the digital technology solutions that are used in
the provision of financial services, including hardware, software and cloud-based solutions
for the financial industry.
Technology companies are therefore likely to become an integral part of the financial
ecosystem, and most respondents to the public consultation expect risks to increase as a
consequence. It is important to address all these risks, not only those affecting customers
(policy-holders, investors and depositors) but also broader financial stability issues and
competition in financial services markets. Such issues are significant both as regards
technology companies’ provision of, and consumers and businesses’ access to, financial
services, as well as the potential spill-over effects between the financial and non-financial
parts of mixed groups. In this context, regulation and supervision should be proportionate,
based on the principle of “same activity, same risk, same rules” and pay particular attention
to the risks of significant operators.
Furthermore, technology is contributing to breaking up previously integrated value chains for
a given financial service. While most financial services have traditionally been offered by one
provider, digital technologies have made it possible for firms to specialise in a particular leg
in the value chain. This increases competition and may improve efficiency. However, it also
makes value chains more complex, making it harder for supervisors to have an overview of
the risks in the value chain, especially if the entities involved are subject to different
regulatory and supervisory frameworks.
The Commission will, where necessary, adapt the existing conduct and prudential EU legal
frameworks so as to continue safeguarding financial stability and protecting customers in line
with the “same activity, same risk, same rules” principle. The Commission will cooperate
with the ECB, national central banks and competent authorities in this process as appropriate.
First, as set out in the Retail Payments Strategy, the Commission will review the Payment
Services Directive and the E-Money Directive.
Second, it will assess how to ensure comprehensive supervision of the more fragmented value
chains and the new providers of financial services. One possibility, included in the proposal
on crypto assets presented alongside this strategy, is to establish a supervisory college for the

15
ecosystem of a given financial services value chain. This would improve cooperation and
ensure that no risk is ignored.
Third, the Commission will explore ways to ensure that the prudential supervisory perimeter
is broad enough to capture risks arising from platforms’ and technology firms’ financial
services provision and from techno-financial conglomerates and groups. To that end, it will
review whether provisions on group supervision in EU financial services legislation, such as
the Financial Conglomerates Directive (FICOD), have a sufficiently broad and flexible
institutional scope to adapt to a constantly changing financial market structure regardless of
the corporate structure and the group’s main activities. The supplementary supervision of
group risks entailed by FICOD could also be one way to beef up cooperation between
sectoral supervisors so as to have a general overview of bundled financial services offered by
various providers.
Fourth, the Commission is considering the need for legislative proposals to address potential
risks stemming from potential large-scale lending operations by firms outside the banking
perimeter, which may entail both micro and macro-prudential risks.
To prepare these actions, the Commission is requesting advice from the European
supervisory authorities on how to address “same activity, same risk, same rules” issues, more
fragmented value chains, the scope of the supervisory perimeter and prudential risks related
to non-bank lending, and will decide on the necessary legislative amendments by mid-2022.
 Protecting consumers and the public interest
The EU must integrate into all measures taken to implement this strategy the objective
of continuously empowering and protecting consumers to ensure that they benefit from
a broader access, under safe conditions, to innovative products and services. The
protection of the public interest against the risk of money laundering, terrorist
financing and any other financial misbehaviours including tax evasion should progress
in parallel.

In a digital world, consumers and investors can access a greater range of financial services,
including cheaper and more innovative services. Interoperable digital identities will make it
easier to access these products remotely and across borders. At the same time, there was a
broad consensus among those who took part to the public consultation that with technology
companies gaining market share in financial services, consumers will face additional risks,
which could include the unwanted consequences of a potential reduction in competition.
The Commission will integrate the objective of facilitating consumers’ access to financial
services, while addressing the risks for them, into the implementation of all elements of this
strategy. A new framework for safe remote identification referred to in section 4.1, easier
access to public disclosures and a new open finance framework referred to in section 4.3 are
particularly important in this respect.
The Commission will assess whether and how the customer protection and conduct aspects of
a number of items of EU legislations can be improved to take account of new, digital ways of
providing financial services. The sectoral financial services framework includes a number of
consumer and personal data protection rules, including rules on conduct of business,

16
information disclosure, credit worthiness or advice. The Distance Marketing of Financial
Services Directive sets out additional requirements as regards sales of financial services at a
distance. In the context of upcoming legislative reviews, the Commission will systematically
assess whether consumer protection rules and the regulatory framework to fight money
laundering, terrorist financing and any other financial misbehaviours including tax evasion
are suited to the digital world, and propose legislative amendments where needed.
Finally, to ensure that European consumers are made aware of these opportunities and that
digital financial products and services fulfil their potential to fight financial exclusion, the
Commission is ready to help fund financial literacy programmes focusing on digitalisation to
be implemented by Member States, for example through the structural reform support
service. The Commission will also duly consider the digital aspect of the actions proposed on
financial literacy in the CMU action plan.30

 Strengthening digital operational resilience

Reinforcement of digital operational resilience of financial market participants is a necessary
cross-cutting measure. The increased reliance on digital and remote technologies as a result
of Covid-19 has illustrated this once even more. The EU cannot afford to have the operational
resilience and security of its digital financial infrastructure and services called into question.
There is also a need to minimise the risk of client funds being stolen or their data
compromised. Alongside this strategy, the Commission is today presenting a proposal
designed to enhance the operational resilience of the financial sector. This complements the
ongoing review of the Directive on security of network and information systems.31

Key actions
The Commission will propose by mid-2022 the necessary adaptations to the existing
financial services legislative framework with respect to consumer protection and
prudential rules, in order to protect end-users of digital finance, safeguard financial stability,
protect the integrity of the EU financial sector and ensure a level playing field.
The Commission is presenting today a proposal for a new EU framework for strengthening
digital operational resilience.

5. Conclusion

30
Communication from the Commission to the European Parliament, the Council, the European Economic and
Social Committee and the Committee of the Regions - A Capital Markets Union for people and businesses-new
action plan, COM(2020)590
31
Directive (EU) 2016/1148 of the European Parliament and of the Council of 6 July 2016 concerning measures
for a high common level of security of network and information systems across the Union (OJ L 194, 19.7.2016,
p. 1).

17
This strategy identifies key priorities and objectives for digital finance in Europe over the
four years to come, based on output from extensive contacts with stakeholders.
To achieve these objectives, the Commission is committing to a number of important
measures.
In addition, private stakeholders, national authorities and the EU must work closely together.
Building on the digital finance outreach, the Commission encourages consumers, businesses,
established financial firms, new fintech companies and their employees to engage actively in
the implementation of this strategy. The Commission will work together with the legislators
and the supervisory community at both European and national level. Member States and
national supervisors should continue and expand their numerous innovative initiatives,
amplifying their effects beyond national markets to encompass the EU single market as a
whole.
Acting together, Europe can lead on digital finance, to support the economic recovery and
benefit Europe’s people and businesses.

18