Civil society is ready to help the EU deal with the challenges posed by digital finance, says EESC

The European Economic and Social Committee (EESC) supports the digital financial package proposed by the European Commission. While digitalisation brings major opportunities, it also presents risks for the EU financial sector that cannot be overlooked and require swift action.

Digital finance urgently needs to be regulated and the European Commission is on the right track to do so. This is the main message of three EESC opinions adopted at the February plenary session, where the Committee throws its support behind the Commission's latest proposals for regulation of the digital financial sector.

Digital finance package

In the opinion drafted by Petru Sorin Dandea and Jörg Freiherr Frank von Fürstenwerth, the Committee endorses the Commission's proposal on the digital finance strategy and stresses that the major challenges in the EU financial sector resulting from digitalisation must be tackled head on.

Speaking during the debate, Mr Dandea stated: Digitalisation in the EU financial sector goes hand in hand with far-reaching restructuring processes, closure of local bank branches, changes in employees' professional qualifications and completely new forms of work. These major issues must not be ignored. They represent a considerable challenge for providers and – of course – for employees in the financial sector.

The EU single market for digital financial services will help improve access to financial services for consumers and retail investors if it functions smoothly. In order to achieve this goal, the fragmentation of the sector needs to be reduced by enabling markets to develop. In this respect, the Committee agrees with the setting up of an EU digital finance platform to facilitate online interactions related to digital finance initiatives, but stresses that social partners and civil society representatives should have a voice in this process.

Commenting on this, Mr Frank von Fürstenwerth said: In addressing the challenges and risks associated with digital transformation, we need to consider key issues in creating the digital single market for financial services. The focus must be on regulation for technology providers, protecting consumers, granting access to financial services, operational resilience and security of network and information systems.

Crypto-assets and distributed ledger technology

In the opinion written by Giuseppe Guerini, the EESC backs the Commission's two initiatives on markets in crypto-assets and on a pilot regime for market infrastructure based on distributed ledger technology (DLT). In this area, measures are urgently needed to regulate a technology which is becoming increasingly widespread, whose practical application is growing and which is constantly and rapidly changing.

Speaking at the plenary, Mr Guerini maintained: Swiftly implementing – by mid-2022 – the various regulatory adjustment measures envisaged by the Commission will be extremely useful, as they are needed to modernise financial services. However, in so doing, we must not lose sight of consumer and investor protection as well as prudential rules. Market integrity must be preserved at all costs.

One pressing reason for these initiatives stems from the fact that, in the last few months, several Member States have adopted national regulatory instruments either through legislative acts or by means of recommendations and guidelines issued by regulatory authorities in this sector. These tools risk creating a fragmented regulatory framework which could undermine the integrity of the internal market and increase the compliance costs borne by businesses.

More specifically, the EESC supports the proposed single regulatory framework which seeks, on the one hand, to protect the end-users of digital finance and, on the other, to safeguard financial stability. That said, the Committee would also like to see measures to protect consumers and small-scale investors, making sure that they receive suitable information and the new and highly technical rules do not have a disproportionate impact on them.

Digital operational resilience

Finally, in the opinion drawn up by Antonio García del Riego, the Committee supports the Commission's proposal on the Digital Operational Resilience (DORA), as it aims to bring legal clarity to the Information Communication Technologies (ICT) risk provisions, reduce regulatory complexity, establish a common set of standards to mitigate ICT risks and facilitate a harmonised supervisory approach. It also seeks to provide legal certainty and the necessary safeguards for financial firms and ICT providers.

Given the increasing dependency on software and digital processes, financial firms can become the target of cyberattacks which can cause financial and reputational damage to themselves and their clients. These risks therefore need to be well understood and managed, so that firms are able to cope with all types of disruptions and threats associated with ICT.

On this issue, Mr García del Riego pointed out: DORA not only enhances the sector's resilience to ICT risks, but is also of interest to several stakeholders, including customers, investors and employees and contributes to sustainable development. At the same time, we must be careful not to add unnecessary bureaucratic hurdles that could prevent EU financial institutions from being part of the global innovative process.