On 15 November 2017, the European Central Bank (ECB) published a newsletter containing an article on how the ECB is dealing with the increasing number of fintech bank applications. The ECB is the banking supervisor, alongside national regulators, for all “significant” banks authorised in Eurozone countries. As such, the ECB is involved with the authorisation of such entities.
The ECB also reports that it is in the process of implementing a fintech hub, which will serve as a central point amongst Eurozone countries for information and questions about fintech.
Acknowledging the need to balance scope for innovation against maintaining appropriate safeguards, such as adequate regulatory capital requirements, the ECB has developed a “Guide to the assessment of fintech bank licence applications”. This guide is meant to help fintech bank applicants better understand the authorisation process and the ECB’s assessment criteria.
The ECB is not relaxing any of the usual standards for fintech bank applicants (as some other global regulators have done), but rather it hopes to help applicants better prepare for the application process, and therefore increase the likelihood of becoming authorised. In particular, the guide intends to help applicants understand which parts of their application are likely to be scrutinised most closely by ECB supervisors. For example, governance needs to be robust (do managers have the right technological skills, and banking experience?), and profitability is likely to be a key focus — with start-ups potentially needing to hold initial capital to cover several years of losses.
Although this assistance does not go as far as that in some other jurisdictions, the ECB’s acknowledgement of innovative firms’ importance and its willingness to provide at least some special guidance is welcome.
At this stage, the ECB has stopped short of suggesting that it will set up a regulatory sandbox, as has been the approach in various jurisdictions around the world (see our recent Client Alert on global regulatory sandboxes). However, the ECB states that it plans to “analyse” regulatory sandboxes in future — a suggestion perhaps that the ECB might consider setting up its own sandbox in due course. Other pan-European regulators have also mooted this idea, but political hurdles may mean that European-wide sandboxes do not emerge for some time, given that regulators in several Member States have not been supportive of the concept.