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How does European financial law stand on FinTech companies?

The European Securities and Markets Authority (ESMA) conducted a European financial market survey and published a report on the status of licensing regimes of FinTech companies on 12 July 2019. The report presents the outcomes of two surveys, which collected data on licensing regimes within the European Union, under which FinTech licenses are granted to companies. In order to obtain these data, ESMA has approached the national competent authorities, which have provided an up-to-date picture of the practice of licensing financial activities.

The survey, which started in January 2018, helped identify potential weaknesses of the current EU financial legislative and assessed, how national regimes diverge. The goal of the second survey from January 2019 was to determine the extent to which national competent authorities used the concepts of “proportionality” and “flexibility” when granting FinTech licenses.

In general, ESMA's aim was to determine how does the European legislation work in individual EU countries and where does it cause the greatest difficulties to the national competition authorities. Where some discrepancies have been identified, ESMA has provided local authorities with a set of recommendations to secure a more effective grasp of European financial law. Consequently, the conclusions drawn from the surveys will certainly help fulfil the legislation in question more effectively.

ESMA's primary finding was the confirmation of the assumption that when granting a licence, the national competent authorities do not usually differentiate between FinTech and traditional business models. This is probably caused by that most of the national competent authorities perceive European financial legislation on licensing as flexible enough, and therefore, when registering a FinTech company, they do not pay much attention to the use of specific technologies and handle the licensing mostly under the “normal” licensing procedure of an ordinary financial activity. On the other hand, several national competent authorities have stated that the effective European legislation is not clear enough and have asked for its clarification.

An overview of the key findings of the ESMA surveys:

  • Problematic areas, i.e. areas where FinTech companies do not fit into the existing regulatory framework are primarily Cryptographic Assets (cryptocurrencies), Initial Coin Offering (ICOs) and Distributed Ledger Technology (DLTs). In these areas, many national competent authorities have asked for clarification of EU regulatory requirements and some of financial instrument definitions provided by the European financial law.
  • Cloud outsourcing and cybersecurity represent another area according to some of the national competent authorities. They have stated to be confused about ICT governance and risk management processes and asked for their clarification.
  • The link between innovation facilitators and authorising approaches for innovative FinTech companies is very close. Innovation facilitators are companies that link the business and research sectors and thus support the development of innovative approaches are referred to as innovation intermediaries. As a result, innovation facilitators help mapping licensing legislation and their activities significantly help identify the weaknesses in financial legislation.
  • As regards crowdfunding and social trading, ESMA has confirmed, that there are ongoing discussions on introducing EU regulation aimed at innovative investment instruments that are not sufficiently regulated by the current Directive (MiFID II). Although crowdfunding and social trading providers are directly under the supervision of the European Parliament and the European Commission, the potential new directive is expected to consider the conclusions of the ESMA survey, thus improving the conditions for innovative financial service providers in general.


The surveys have mapped out how national competent authorities work with existing European financial law and have provided the necessary insight at Member States level. On the basis of the data obtained, ESMA has assessed that at present, most of the FinTech companies can operate under the effective European legislation. Although the survey has revealed some shortcomings and uncertainties, according to ESMA, these are not serious enough that they cannot be solved individually and an entirely new directive is no longer needed.


Related links:




Report - FinTech: Regulatory sandboxes and innovation hubs

Joint Advice of the European Supervisory Authorities - To the European Commission on the need for legislative improvements relating to ICT risk management requirements in the EU financial sector

Advice - Initial Coin Offerings and Crypto-Asset

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