Although the European Union is a single market financially speaking, there are still many differences on the national level when it comes to regulations for banks and fintech companies. As a result, Europe still has a long way to go before it can expect further fintech success. Joost Walgemoed, CEO of Blanco, is calling for change. If fintech companies and banks make their voices heard and work more together, and if the EU starts living up to its responsibilities, then Europe could become much more competitive in the field of fintech.
Gold-plating and different legal interpretations
In financial terms, the European market is a single block: It is possible and increasingly easy to exchange financial resources across national boundaries within the EU. More and more regulations are being created on the EU level as well. Yet on the member-state level, there are still many differences in the way banks and fintech companies are regulated. There are various reasons for this, and each of those problems must be addressed.
First of all, some variation exists simply because national laws and regulations have not yet been adjusted. In such cases, European legislation is out of step with reality, which results in differences in legislation among the various member states. For example, the German tax code still distinguishes between citizens depending on which religion they adhere to. Legislation like this is out of touch with modern society and shows that we must still take many steps before we reach the uniform set of laws that a shared market requires.
Another problem is so-called gold-plating; a legislative practice in which European member states layer new national-level laws or conditions on top of existing European laws. This is counter-productive to the goal of creating a single European market in which economies of scale can arise. By enacting such legislation, national governments are making it harder to create a shared market for financial solutions.
In addition to gold-plating, there are also differences in how European law is interpreted on the national level. The guidelines and recommendations handed down by local market oversight authorities can vary greatly from one country to the next. Such variation is plain to see, for example, in how different countries interpret the MiFID II suitability and appropriateness test, or in the case of anti-money laundering legislation.
Consequences for Europe
As long as the rules for financial products and services are different or interpreted differently in each European country, it will be difficult for fintech companies and banks to scale up those products and services in Europe. And this is regrettable because those service providers also have a crucial societal function. At Blanco, our mission is to ensure that asset managers can operate independently for longer. Other fintechs, for example, provide services to the so-called unbanked, a problem that has received too little attention. In Europe, around 37 million citizens have no access to mainstream banking services. 42% of the population in the EU-member state Romania alone are unbanked. There are many companies that are ready and able to make financial services such as banking, asset management and investing accessible to everyone, but that will require European legislation which is interpreted and applied uniformly. This is the only way we can create fertile ground for further European fintech success, as well as for financial inclusion.
But it is not only the European Union that has responsibility for solving this problem. Those of us within the financial sector must also speak out more about the importance of uniform implementation and interpretation of European law among EU member states. Together, we are stronger and, like other industries that have made their voices heard in Brussels, we can sound the alarm for change.
This will require a joint effort among all of us in the financial sector, bringing together companies both large and small, so that we can speak with one strong voice. In addition to banks, who have already been speaking out for some time, it’s now time for other financial companies to come together and ensure that the European Union becomes a level playing field for even more fintech success. This will not only create more jobs and promote economic prosperity, but it will also lead to greater financial inclusion so that no one in Europe is ever forced to be unbanked.
Guest contribution by Joost Walgemoed, CEO & Founder of Blanco.
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