Most fintech/ Regtech and Insuretech solutions start in their own country and are well aware of their own country’s regulatory requirements. But what happens if they want to move beyond their own geographical borders, especially in Europe? The EU Commission is working to implement a Europe-wide action plan and has involved the European Banking Authority, EBA. The aim is to provide regulatory certainty and stability in the industry, for fintechs and their clients. This is especially relevant in Germany as the region positions itself as a fintech hub, and as Brexit convinces some fintechs to consider headquartering in Germany instead of the UK. KPMG Germany is therefore offering help to fintechs through a self-assessment questionnaire to gauge their regulatory readiness.
Thilo Kasprowicz, Partner: Financial Services at KPMG Germany, points out that fintechs are revolutionising the financial sector, but says regulation of fintechs has lagged until recently.
Kasprowicz notes that, according to the latest KPMG report, The Pulse of FinTech, global investment in Fintech was $111.8 billion with 2196 deals compared to 2017’s $50.8 billion. The report also mentions that Challenger banks, historically focussed on domestic markets, are expanding into other countries, for example during 2018 N26 received $160 million from investors Tencent and Allianz to help fuel their international growth. Ambitions and funding for expansion beyond geographical borders is crucial, but complying with the relevant regulatory requirements are key to enable this growth.
“In Europe, as the current EBA FinTech Roadmap shows, there are more than 1,500 fintechs, which are becoming an increasingly important part of the financial sector,” he says. “The recent introduction of third-party access to current payment service providers' account details via the corresponding EU PSD2 Directive will further enhance this role.” Regulation can give fintechs stability and thus strengthen the trust of customers and collaborators, thus benefiting the entire ecosystem.
“Fintechs are a key driver for the digitisation of the economy within the EU,” says Kasprowicz. “The dissolution of the patchwork of different regulatory works is necessary to promote European fintechs in global competition. Since, for example, Internet platforms do not end at national borders, stable and uniform framework conditions for fintechs are a key to their further growth, at least in Europe. Good regulation can make a significant contribution to the growth of the industry through stabilising a young industry, but also in the sense of creating a "quality seal" for partners and investors. For this to work, regulation in Europe should be European harmonised, technology-neutral and principle-based.”
EBA is making progress on their drive towards achieving a level-playing field. Thy aim to help the financial industry make use of the rapid advances in technology such as blockchain and other IT applications and strengthen cyber resilience, ultimately to the benefit of consumers, investors, banks and new market players.
The envisaged EU-wide FinTech regulation can become the necessary framework for all those involved, enabling growth and innovation, and ensures that similar businesses compete based on the same rules.
It could require considerable investment for emerging technologies in the financial service space to establish to what extent they already comply or don’t comply with regulatory requirements before expanding to another country, especially if a FinTech aims to apply for a licence for a particular type of business that needs authorisation. To assist fintechs in assessing whether or not they are “fit for regulatory compliance in Germany”, KPMG has developed a digital self-assessment tool that provides an initial assessment of your company's maturity compared to the market standard.
In just 10 minutes, the tool provides an assessment of key regulatory areas, including business planning, governance, accounting, money laundering, consumer protection and how well your company is positioned relative to the market standard. Join us for a webinar to understand the regulatory context and tool or click here to access the FinTech Regulatory Self-Experience.