Carolina Oliveira
F6S Innovation 

In March 2018, the European Commission took a significant stride toward embracing the transformative potential of FinTech with the unveiling of its FinTech Action Plan. The plan aimed to position Europe as a global hub for FinTech, enabling businesses and investors to capitalise on the benefits offered by the Single Market. This comprehensive initiative aligns with the broader vision of the European Commission to build a Capital Markets Union (CMU), establish a true single market for consumer financial services, and advance the Digital Single Market. In this article, we will delve into the key aspects of the FinTech Action Plan, focusing on its objectives, regulatory measures, and the broader landscape of digital finance in the European Union. 

The FinTech Action Plan 

At its core, the FinTech Action Plan seeks to leverage technology-enabled innovation in financial services to foster growth, enhance accessibility, and ensure market integrity. The plan outlines ninteen crucial steps to support innovative business models, facilitate the adoption of emerging technologies like blockchain and artificial intelligence, and bolster cybersecurity within the financial sector. Among the notable initiatives are the establishment of an EU FinTech Laboratory, a platform for engagement between authorities and tech providers, and the creation of the EU Blockchain Observatory and Forum to explore the potential of crypto assets and distributed ledger technology. 

The Commission’s commitment with the financial sector is further emphasised by its effort to streamline information-sharing on cybersecurity, the wish to develop european data hubs/centres, and the proposal for a blueprint on regulatory sandboxes. These sandboxes provide a controlled environment for FinTech startups to conduct live experiments under regulatory supervision, fostering innovation while ensuring consumer protection and market stability. 

Regulation on Crowdfunding 

Recognising the potential of crowdfunding to improve access to funding for startups and small businesses, the Commission has proposed new rules to address the underdeveloped state of crowdfunding in the EU. The lack of common rules has hindered the expansion of crowdfunding platforms across borders, increasing compliance and operational costs. The proposed regulation aims to create a harmonized framework, allowing crowdfunding platforms to apply for an EU label based on a single set of rules. This not only facilitates platform expansion but also ensures investor protection through clear rules on information disclosure, governance, and risk management. 

Digital Finance in the EU 

Digital finance, the digitalisation of financial solutions, is offered by FinTech organisations, and represent the application of digital technologies to financial activities. Corporations can also develop their own digital financial solutions. The COVID-19 pandemic has accelerated the adoption of digital financial services, from mobile banking to contactless payments, passing through investment and savings services and development of interoperable accounting tools. In response, the EU has prioritised the development of digital finance, aligning with its broader digital strategy and recovery plan. The goal is to create conditions for strong European market players, rooted in European values and sound risk regulation. 

The EU’s commitment to digital finance is not confined to the FinTech Action Plan. In September 2020, the Commission unveiled a digital finance package, encompassing a digital finance strategy, a retail payments strategy, and legislative proposals on crypto-assets and digital resilience. This package aims to boost Europe’s competitiveness, enhance innovation in the financial sector, provide more choices in financial services, and ensure consumer protection and financial stability. 

Crypto-Assets Regulation 

One notable component of the digital finance package is the Markets in Crypto-Assets Regulation (MiCA), a groundbreaking move to bring crypto-assets, issuers, and service providers under a unified regulatory framework. MiCA covers unbacked crypto-assets and stablecoins, regulating trading venues and wallets to protect investors and mitigate risks. This regulatory approach aims to foster innovation while establishing the EU as a standard-setter for digital policy. Negotiations and agreements between the Council and Parliament reflect the EU’s commitment to comprehensive and forward-looking regulation in the crypto-asset space. 

Digital Operational Resilience Act (DORA) 

As the financial sector becomes increasingly reliant on digital processes, the Digital Operational Resilience Act (DORA) sets uniform requirements for the security of network and information systems. The act mandates that firms withstand, respond to, and recover from ICT-related disruptions and threats, underlining the importance of digital resilience in the financial landscape.  

Negotiators reached a provisional agreement in May 2022, focusing on ensuring the financial sector’s ability to cope with operational disruptions and threats to information and communication technology systems. The regulation is currently delivering batches of policy products until January 2025, when DORA will be applied with oversight activities for the ESAs (incl. CTPPs designation). 

Pilot Regime for Market Infrastructures Based on DLT 

The pilot regime for market infrastructures based on distributed ledger technology (DLT) represents another crucial step toward enhancing the EU’s competitiveness in digital finance. By setting conditions for obtaining permission to operate a DLT market infrastructure, defining tradable DLT financial instruments, and detailing cooperation mechanisms, this pilot regime fosters innovation while ensuring consumer protection and financial stability. The provisional agreement reached in November 2021 and subsequent endorsement by member states in December 2021 underscore the commitment to responsible and adaptive regulatory frameworks. 

A Digitally Resilient Financial Future for Europe 

The FinTech Action Plan and the broader digital finance initiatives undertaken by the European Commission outline a comprehensive strategy to embrace and regulate the transformative potential of technology in the financial sector. By fostering innovation, improving regulatory frameworks, and ensuring consumer protection, the EU aims to position itself as a global leader in digital finance. As these initiatives progress, Europe is poised to navigate the evolving landscape of FinTech, bolstering its economic resilience, fostering job creation, and offering consumers and businesses a diverse array of financial services rooted in trust, transparency, and technological advancement. 

The Fintech Action Plan 2.0

In accordance with the Better Regulation principles, the Commission launched a consultation in 2022 with the aim of obtaining input from stakeholders regarding policies aimed at bolstering digital finance. It came after two open forums with a particular focus on digital operational resilience and crypto assets that were held in December 2019. The goals of this consultation corresponded to the priority areas to drive the development of digital finance in the EU: to ensure that the EU financial services regulatory framework is fit for the digital age, to enable firms and consumers to take advantage of the opportunities provided by the EU-wide Single Market for digital financial services, to promote a data-driven financial sector that benefits EU firms and consumers, and to improve the digital operational resilience of the EU financial system. The results of the consultation can also be seen through the summary of responses.