Regulators Must Catch up With Digital Finance, EU Watchdogs Warn

Europe’s three regulators have called for actions to ensure the European Union’s (EU) rules and supervisory framework is fit for the digital age.

The EU’s banking watchdogs said regulators are playing catch-up with digital finance as Big Tech and social media platforms enter the space.

“Digital finance has unlocked new synergies between financial and non-financial activities that potentially introduce systemic risk into the market for financial services,” the report said. “To manage prudential risks posed by mixed activity groups performing financial and other services, the European Supervisory Authorities (ESAs) suggest updates to and the potential expansion of consolidation rules to ensure effective coverage.”

The 109-page report was written by the ESAs, which includes the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA) and the European Securities and Markets Authority (ESMA).

The ESAs also noted that the use of innovative technologies in the EU’s financial sector is making changes to value chains, that dependence on digital platforms is increasing rapidly, and that new mixed-activity groups are emerging.

While these trends open opportunities for consumers and financial institutions, it also poses risks. The ESAs called for better rules to manage these new innovations and protect consumers.

At the same time, the British finance ministry is planning to require regulators to consider the financial sector’s global competitiveness when writing rules.

Related: UK Adds Focus on Growth in Considering Financial Regulation

Many in the country’s financial sector want the Bank of England’s Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) to help London stay competitive around the world.