The three European Supervisory Authorities (ESA), EBA, EIOPA and ESMA, have called for “rapid action” to ensure that the EU financial services regulatory and supervisory framework remains fit-for-purpose in a digital age.

The comments were made in response to the European Commission's 2021 Call for Advice on Digital Finance, which aimed to maintain a higher level of consumer protection and address risks arising from the transformation of value chains.

The ESA's report noted that the use of innovative technologies in the EU financial sector is facilitating changes to value chains, with dependencies on digital platforms increasing rapidly, and new mixed-activity groups, which combine financial and non-financial activities, emerging.

However, the report clarified that whilst these trends open up a range of opportunities for both EU consumers and financial institutions, they can also pose new risks.

In light of this, the ESA called for “rapid action” to be taken to ensure the regulatory framework remains fit-for-purpose, suggesting that a holistic approach is needed towards the regulation and supervision of the financial services value chain.

It recommended introducing strengthened consumer protection in a digital context, including through enhanced disclosures, complaints handling mechanisms, measures aimed at preventing the mis-selling of tied/bundled products, and improved digital and financial literacy.

Alongside this, the report called for further convergence in the classification of cross-border services, and in addressing money laundering/financing of terrorism risks in a digital context.

It also called for strengthened supervisory resources and cooperation between financial and other relevant authorities, including on a cross-border and multi-disciplinary basis.

Effective regulation and supervision of ‘mixed-activity groups’, including a review of prudential consolidation requirements, was also highlighted as a key recommendation, alongside more active monitoring of the use of social media in financial services.

"The ESAs remain at the disposal of the commission, including for assistance on how to introduce the proposals into law and the production of any necessary guidance," the report stated.

"Additionally, the ESAs observe that financial services and business models continue to evolve quickly with digitalisation and the use of innovative technologies and that there may be a need to re-assess the issues that these developments raise in due course."

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