Promoting financial innovation across the EU

Historically, financial innovation, in nowadays mostly shaped through technology-enabled innovation, offers opportunities and challenges for the financial services sector, including its regulators and supervisors. In order to ensure that the benefits of new technologies can be optimised whilst protecting the resilience of the financial system and delivering an appropriate level of protection for consumers, it is important that an EU-wide and technologically neutral approach be adopted. An example in the EU is the application of the Payment Services Directive (2007/64/EC) and the related instruments developed by the EBA, encouraging technical innovation and competition in the retail payments market by setting requirements on incumbents to share customer data while bringing new actors within the realm of regulation. The revised Payment Services Directive (2015/2366) is expected over a long-term horizon to contribute to significantly changing the payment market, alongside progress in technology further enabling innovation, as well as changes to customers expectations. However, technological neutrality in regulation must be complemented by similar neutrality in supervisory culture and practice. Thus, the establishment of ‘innovation facilitators’ has been seen by a number of regulators/supervisors as an essential addition to their supervisory frameworks to further help promote an understanding by competent authorities and firms of new technologies and their regulatory and supervisory treatment. Such facilitators may also leverage the margins of discretion with regard to the application of the proportionality and flexibility principles embedded in the EU regulatory rules.