Hindsight might be 2020 but the Freshfields Fintech team is looking forward to 2021. We switched on our digital crystal ball, scrutinised our tea leaves and have set out some of our predictions for the year ahead.
Claire: Data data data – we’ve seen the competition regulators turn their attention to data and I can see financial regulators across the world doing the same in 2021, especially regarding access to data sets, and what institutions are actually doing with data (and if they have customer permission to do what they want). Data ethics is something regulators will expect firms to get a grip on.
Eva: Commission fintech agenda – 2021 will be an interesting year looking at the legislative and regulatory agenda for fintech, with legislators and regulators aiming at striking the balance between fostering innovation and addressing risks as well as tackling fragmentation. In the very dynamic payments sphere, a cornerstone will be the comprehensive review of the revised Payment Services Directive, as announced by the European Commission in its digital finance and retail payments strategies (see our previous blog post). As part of this, the Commission will look at topics such as limits for contactless payments, the impact of strong customer authentication, greater alignment with the Electronic Money Directive and if technical services should be brought within scope. The outcome will also form the basis of the open finance framework due to be proposed in 2022, a key milestone following the introduction of open banking in the EU. (For developments in open banking in Hong Kong, see this blog post.)
Stephan: Digital currencies will also continue to play an important role on the agenda: Central banks, like the ECB, have commenced public consultation processes aimed at identifying viable options while at the same time pivoting their suggested approach and advantages over non central bank currencies. At the same time, some digital currencies enjoy a significant uptick in valuation, also supported by favourable opinions by investment banks.
In this respect, market participants are keen to see if the Commission’s legislative proposals on crypto-assets and DLT-based market infrastructure (summarised in this blog post) will be adopted this year, together with the envisaged regulatory guidance. This new framework is intended to put the EU at the forefront of the global crypto markets and it will be interesting to see its implications in practice. This is also true for new regimes proposed on the national level – for example, as provided for in the current draft bills on electronic securities in Germany (see this blog post) or digital securities in Austria (further information here).
George, Andy and Carl: Big tech takes on insurance – we can see 2021 being the year so-called big tech companies (eg Amazon, Apple, Google, Facebook, etc) finally flex their muscles in the insurance space with their large customer bases, trusted brands and big-tech experience. The coronavirus pandemic has increased our everyday use of big-tech services and in 2021 we will expect similar ease of use and personalisation with our insurance products. However, it will not be without challenge given the regulation in the sector (both financial and antitrust) and lack of sector expertise or experience for these players (although many have slowly been building up their insurance know-how over the past number of years).
John: Payments consolidation – in the payments space, I think consolidation will be back on top of the menu in 2021. The dish of choice could perhaps be called ‘Consolidation, 3 Ways’ – as firms will be looking to: get fintech M&A activity back up to pre-COVID levels; consolidate the advances in digital payments adoption that we’ve seen over the last 12 months; and diversify and consolidate their platforms to incorporate the latest developments (including request to pay, payment by instalments and digital currency payments). To stretch the food metaphor even further, the big question mark is how far antitrust authorities will crash the party and force payments firms to instead eat humble pie…
Eugene and Natalie: Focus on big tech – while 2020 threw up a series of challenges for big tech companies (eg disruption to transatlantic data flows and the prospect of a future digital services tax) and propelled new initiatives forward (eg digital euro), we don’t expect 2021 to be any easier, including when it comes to their involvement in the financial ecosystem. At the very end of last year, the European Commission published proposals for facilitating greater data sharing through intermediaries (incl. in the financial sector), updated rules on digital services and regulating the role of so-called 'gatekeeper' platforms. Discussions on these proposals, which will kick off at the beginning of 2021, will have a clear read across to and potentially complicate ongoing negotiations on EU level supervision of significant stablecoin issuers (eg Diem) and critical third party service providers (incl. cloud), which will intensify (or even come to a head) in 2021.
Eva: Operational resilience – another game changer would be the adoption of the proposed framework on digital operational resilience, extending EU financial regulation to critical providers of information and communication technology services, such as cloud computing or data analytics (as explained in this blog post). Authorities across the world will pursue reforms in these areas, which are in the centre of interest again following a brief pause caused by the COVID-19 pandemic. On operational resilience and outsourcing in the financial services sector in the EU, UK, US and internationally see here and here.
Anti-money laundering – we also expect anti-money laundering and counter-terrorism financing (‘AML/CTF’) to continue to be a hot topic. For example, a revised AML/CTF framework will be proposed in the EU in the course of the next months, as set out in the Commission’s Action Plan of May 2020. Most relevant for fintechs is that this will include more harmonised KYC rules across the EU, which are intended to put an end to the large differences between member states in this respect – an endeavour that would be strongly welcomed by the fintech industry. This stands in the context of the Commission’s strategy to promote quicker and easier remote customer onboarding and the use of digital identity solutions for this purpose. Digital identities will be in the focus of regulators globally, and promising initiatives lie ahead. For more insights, check out this podcast.
