digital finance

Digital finance stakeholders are being invited to submit feedback to a call by the European Securities and Markets Authority (ESMA) regarding digital finance and related issues.

The ESMA is conducting the exercise to then give formal advice to the European Commission (EC) on:
i. the regulation and supervision of more fragmented or non-integrated value chains arising as a result of financial firms increasingly relying on third parties for the delivery of their services and of technology companies entering financial services;
ii. digital platforms and bundling of services; and
iii. risks of groups combining financial and non-financial activities.

“Technological innovation is transforming financial services at an unprecedent speed, by facilitating new business models and services and the entrance of new market participants,” says the ESMA in the call for evidence, noting also that COVID-19 is accelerating this shift and the digitalisation of financial services.

“These changes bring a host of opportunities, including the prospect of better financial services for businesses and consumers and greater financial inclusion.”

“Yet they raise challenges as well,” it continues, “as they can contribute to introduce or exacerbate new risks. Also, the existing regulatory and supervisory framework may not fully capture and address these new developments.”

The EC aims to address the challenges and risks attached to digital transformation by proposing, where relevant, adaptations to the existing legislative frameworks by mid-2022.

To prepare these actions, and considering that regulation should be technology neutral according to the ‘same activity, same risk, same rule’ principle, the EC is requesting technical advice from the ESMA.

The exercise aims to facilitate the implementation of the Digital Finance Strategy, adopted by the EU in September 2020, which sets out the European intention and actions to review the existing financial services legislative frameworks.

A circular issued by the Malta Financial Services Authority noted that the ESMA is thus requesting evidence for its consideration in the formulation of advice as to how to address the challenges posed by the digital financial services industry developments and the changing regulatory landscape.

The call for evidence is meant for:
i. Financial firms relying on third-parties, in particular technology firms, to fulfil critical or important functions;
ii. Third-parties, in particular technology firms, on which financial firms rely to fulfil critical or important functions;
iii. Technology firms providing financial services, either directly or through partnerships with financial firms;
iv. Platforms marketing or providing access to different financial services;
v. Groups combining financial and non-financial activities, also known as mixed activity groups.

The ESMA will consider the information received through this call for evidence when drafting its response to the EC, which needs to be delivered by 31st January 2022

The call for evidence is open until 1st August. The call can be found here while the response form may be downloaded from here.

Any queries or feedback in relation to the above may be directed to digital@mfsa.mt, whilst updates and developments on FinTech related matters and initiatives may be found on relevant section of the MFSA website.

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