(A.) Policy and legislation
The way financial data is exchanged across institutions and companies worldwide is becoming more and more automated and complex. The financial sector is playing a crucial and systemic central role, being affected by new and emerging trends such as digitalisation and new business models. The financial services and insurance industries have seen profound technology-led changes over the past few years.
“Fintech” innovators and entrepreneurs are redefining the way we save, borrow, invest, spend and protect our money. They not only bring new financial services to the market, but also pioneer an innovative culture, introducing software, technology and business practices beyond those traditionally associated with the financial services sector. These changes again impact business operation communication flows on financial data.
Business operations benefit from standardised solutions to support and foster a more competitive and innovative European financial sector. The use of standards and technical specifications enables seamless information exchange among financial service providers, lowers barriers, underpins trust of consumers, boosts innovation and enables compliance with financial laws in a cost-effective way.
It is a challenge to find the right standardisation axis in such a rapidly transforming industry.
In parallel, regulatory efforts are trying to keep pace with the impact of digitalisation on systemic risk management, resulting in supervisory reporting obligations imposed on the entire financial sector, while stock listed companies are guided into transparency reporting obligations to leverage transparency for investors. In general, “reporting” is summarizing in various ways the recording of what happened in business operations.
Access to standardised data is essential to perform supervision of financial institutions, monitoring of systemic risk, and market oversight and ensure orderly markets, financial stability, investor protection and fair competition.
Current reporting obligations are perceived as costly and burdensome due to potentially duplicative and overlapping reporting requirements, but in reality, more due to insufficient standardisation and lack of clarity on what needs to be reported.
“Regtech” initiatives are ramping up in this domain, seeking among others digital ways to shrink the time-to-supervisor while maintaining control of business operations and understanding the details of the supervisory reporting obligations. It is imperative to standardise regulatory dictionary definitions on a European level and enable digital linking between regulation and supervisory reporting obligations.
(A.1) Policy objectives
Traditional financial institutions realize they have a lot to lose or gain from the Fintech revolution and invest huge effort and money to adapt their technology and processes to adjust to a new environment, find a place in this new ecosystem, compete with new business models and respond to new consumer needs and behaviours. Across Europe, there has been considerable uptake of new digital channels: over 58% of Western Europeans (85% for Northern Europeans) prefer to use digital over physical branches, compared to 52% of US bank customers. These trends have grabbed the attention of investors who have made massive investments, growing by 75% in 2015 to $22.3bn, five times higher than in 2013.
Fintech start-ups appear with innovative solutions challenging existing financial services business models, markets and regulation. The existing legal framework is being reviewed at EU level and the concept of regulatory experimentation frameworks (or sandboxes) explored to help address this transformation and enable innovation.
Some regulatory adjustments have already been adopted such as amendments to the Anti-Money Laundering directive and the use of electronic identification. Since July 2016, the Electronic Identification and Trust Services Regulation can give e-transactions and other e-signed documents the same legal status as those that are paper-based. The Capital Requirement Regulation CRR2 package adopted in 2016 takes technological innovations into consideration, and so is the 2017 Action Plan for Retail Financial Services.
Following several public consultations regarding financial services and the EU Parliament report on blockchain and virtual currencies, the Commission has set-up a horizontal Financial Technology Task Force to explore the impact of new financial technologies on consumers and businesses and the possible risks for financial stability. One of the work streams of the Task Force focuses on Interoperability and Standardisation.
(A.2) EC perspective and progress report
The interoperability and standards work stream of the Financial Technology Task Force was kicked off in January 2017. A consultation on FinTech took place from 23 March to 15 June 2017. The results have been published during the summer 2017.
Since 2012, the European securities and market authority (ESMA) has defined, on a yearly basis, European common enforcement priorities (ECEP) in order to promote the consistent application of European securities and markets legislation and the IFRS, and especially the provisions of the Transparency Directive. Those priorities are a key focus of the examination of issuers’ financial statements. They are made public so that listed companies and their auditors take due account of these areas when preparing and auditing IFRS financial statements.
In terms of technical standards, the EU adopted in May 2019 an RTS on the European Single Electronic Format (ESEF) for the digital format (XHTML) and structure (inline eXtensible Business Reporting Language-iXBRL ) of annual financial reports enabling both human and machine readable financial reports as required by the Transparency Directive. It should take effect from 1 January 2020 for listed companies and key financial information in all EU official languages. The extensible Business Reporting Language (XBRL) 2.1 was identified by the Commission for referencing in public procurement according to the provisions of Regulation (EU) 1025/2012 on European standardisation. In addition, the European Commission adopted in September 2020 the new Action Plan on the Capital Markets Union. The plan contains 16 legislative and non-legislative actions towards completing the CMU, among which is setting up an EU-wide platform – the European Single Access Point (ESAP). An EU-wide access to company data in digital formats will reduce information search costs for cross-border investors and will widen the investor base for companies. The ESAP will also improve the availability and accessibility of sustainability-related data.
In addition, the European Commission adopted a digital finance package on 24 September 2020 , including a digital finance strategy and legislative proposals on crypto-assets and digital resilience, for a competitive EU financial sector that gives consumers access to innovative financial products, while ensuring consumer protection and financial stability. The digital finance strategy sets out general lines on how Europe can support the digital transformation of finance in the coming years, while regulating its risks. The strategy sets out four main priorities: removing fragmentation in the Digital Single Market, adapting the EU regulatory framework to facilitate digital innovation, promoting a data-driven finance and addressing the challenges and risks with digital transformation, including enhancing the digital operational resilience of the financial system.
- CMU-action-plan - https://ec.europa.eu/info/publications/200924-capital-markets-union-act…
- Commission SWD “Fitness check of EU supervisory reporting requirements” https://ec.europa.eu/info/publications/191107-fitness-check-supervisory…
- Commission Delegated Regulation (EU) 2018/815 of 17 December 2018 supplementing Directive 2004/109/EC of the European Parliament and of the Council with regard to regulatory technical standards on the specification of a single electronic reporting format https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:02019R0815-20…
- Directive 2004/109/EC (Transparency Directive) aims to ensure transparency of information for investors through a regular flow of disclosure of periodic and ongoing regulated information and the dissemination of such information to the public. Regulated information consists of financial reports, information on major holdings of voting rights and information disclosed pursuant to the Market Abuse Directive (2003/6/EC).
- Commission Communication on the CfE: EU regulatory framework for financial services of 23 November 2016
- Commission Staff Working Document on the Call for Evidence on EU financial services of 23 November 2016 to assess the cumulative effect of the new financial sector rules put in place since the crisis
- Ministerial Declaration on eGovernment - the Tallinn Declaration
- The Parliament has written a report on the influence of technology on the future of the financial sector http://www.europarl.europa.eu/oeil/popups/ficheprocedure.do?lang=&reference=2016/2243(INI)
- The Commission has launched a public consultation on FinTech https://ec.europa.eu/info/finance-consultations-2017-fintech_en
- The Commission set up an internal Task Force on Financial Technology https://ec.europa.eu/digital-single-market/en/blog/european-commission-…
- The Commission published a FinTech Action Plan https://ec.europa.eu/info/publications/180308-action-plan-fintech_en
(B.) Requested actions
Action 1 Ensure EU level coordination on FinTech standardisation, with CEN/CENELEC, European Supervisory Authorities, Fora Consortia, Industry, and with Standards Setting Organisations (such as ISO). Also ensure proper coordination with Open Source Projects working on Blockchain.
Action 2 Develop one ‘Common Terminology’ which is uniquely defined and provides a linking method between Regulation and Supervisory Reporting following the “define once” principle. The EU ISA² Programme Core Vocabularies methodology will be used as a guideline.
Action 3 Create an external subject matter experts network on Supervisory Reporting, contributing to and validating the ‘Common Terminology’.
Action 4 Set up a governance structure to maintain the ‘Common Terminology’.
Action 5 ESMA shall continue extending the XBRL-based reporting (actually inline XBRL) of listed companies under the Transparency Directive. In this context, additional (i.e. yet uncovered) parts of the annual financial report and other regulated information of listed companies should be marked up. The taxonomy for these newly marked up parts should be developed in order to achieve standardisation at EU level.
(C.) Activities and additional information
(C.1) Related standardisation activities
ISO and IEC
ISO/TC 68 “Financial Services” develop standards in the field of banking, securities and other financial services, relevant to FinTech, with the following sub-committees:
- Financial services, security
- Securities and related financial instruments
- Core banking
- Reference data for financial services
- Information exchange for financial services
ISO/TC 68 is responsible for the development and maintenance of the ISO 20022 “Financial services - Universal financial industry message scheme” series, the ISO 17442 “Financial services — Legal entity identifier (LEI)” series and ISO 23897 “Financial services — Unique transaction identifier (UTI)”.
Furthermore, ISO/IEC JTC 1/SC 27 “IT Security techniques” develops standardisation solutions relevant to FinTech, including generic methods, techniques and guidelines to address both security and privacy aspects.
Eurofiling is a collaborative environment created in 2005, bringing together the public and private sector: Regulators, Supervisors, financial institutions, providers, academic and private individuals. The common theme is European and National regulatory reporting versus the financial ecosystem. Eurofiling’s objective is to improve collaboration and awareness to leverage interoperability. The Eurofiling community gathers in “Workshops” dedicated to interoperability in dictionaries, data point modelling, reporting standards, taxonomies, related know-how, academic research, interchange of experiences, future changes, best practices and materials for supervisory reporting frameworks.
Eurofiling is governed by the Board of Eurofiling Foundation p.f.
Standardisation resources on Supervisory Reporting: http://www.eurofiling.info.
CEN/WS XBRL: CEN workshop on improving transparency in financial and business reporting, including CWA 16744-3:2014 (European DPM-based XBRL taxonomy architecture), CWA 16746-1:2014 (standard regulatory roll-out package for better adoption: XBRL supervisory roll-out guide) and CWA 16746-2:2014 (standard regulatory roll-out package for better adoption: handbook for declarers).
The CEN.XFS Workshop maintains multi-vendor device access specifications with a technical commitment to the Win 32 API. The related specifications are available here: https://www.cen.eu/work/Sectors/Digital_society/Pages/WSXFS.aspx
Moreover, the CEN/BT WG 220 ‘Fintech’ was established to map the current standardisation landscape. The mapping provides an opportunity to identify European, international and national standards and other initiatives related to Fintech, with the potential to release growth and innovation in the financial sector, evaluate their market impact and facilitate new paths to increase the competitiveness of the Fintech sector. CEN will further engage with financial services and insurance industries, Fintech start-ups and technology developers to define a comprehensive analysis of Fintech-related topics.
In the follow-up to this study, CEN will look into new standards and supporting protocols for the broad adoption and use of new technologies which contribute to the establishment of industry, consumer and market confidence.
IEEE Standards Association has ongoing standardisation activities in the areas of FinTech, e-Invoices and Cryptocurrency.
The “Blockchain in Supply Chain Finance” Working Group runs IEEE P2418.7 to develop a Standard for the Use of Blockchain in Supply Chain Finance. It defines a baseline architectural framework and functional roles for blockchain-driven supply chain finance (SCF) implementations, e.g. core enterprise, suppliers, buyers, banks, blockchain platform providers and so on. In addition, this standard outlines uses cases and business flows for SCF based on blockchain, and specifies the functional and security requirements.
The “Knowledge Graph” Working Group develops a - Guide for Application of Knowledge Graphs for Financial Services (IEEE P2807.2).
There is also focused standardisation activities around E-Invoice. The “E-Invoice Business Using Blockchain Technology” Working Group of the IEEE Consumer Technology Society “Blockchain” Standards Committee develops a Recommended Practice for E-Invoice Business Using Blockchain Technology (IEEE P2142.1)
The “Cryptocurrency Exchange” Working Group of the IEEE Consumer Technology Society “Blockchain” Standards Committee develops the P2140.x family of standards addressing general requirements, user identification, anti-money laundering, a DLT exchange framework, and a custodian framework.
The IEEE Computer Society Blockchain and Distributed Ledgers Standards Committee has several active projects focused on cryptocurrency and performance metrics for cryptocurrency payments.
More information is available at blockchain.ieee.org/standards.
ITU-T Focus Group on Digital Financial Services (FG DFS) for Financial Inclusion (FG-DFS) closed in December 2016 with 85 policy recommendations and 28 supporting thematic reports. The main recommendations can be accessed here:
ITU-T Focus Group Digital Currency, including Digital Fiat Currency (FG DFC) closed in June 2019. It considered the regulatory issues for Central Bank Digital Currency and developed two main reports addressing the legal and regulatory issues:
- Digital Currency Implementation Checklist for Central Banks;
- Regulatory Challenges and Risks for Central Bank Digital Currency.
The Digital Currency Global Initiative (a collaboration between ITU and Stanford University) was set up in July 2020 to continue the dialogue and research initiated by the ITU-T FG DFC. It aims to compile case studies on implementations of central bank digital currency, stablecoins, emoney and cryptocurrencies in all aspects. Its activities are focused on three main pillars: engagement, innovative use and standardisation. Three working groups have been set up under the Standardisation pillar:
• Architecture, Interoperability Requirements and Use Cases (AIRU)
• Policy and Governance (PG)
• Security and Assurance (SA)
ITU-T Focus Group on Application of Distributed Ledger Technology (FG-DLT) concluded in August 2019. Its deliverables include a discussion of regulatory aspects of DLT, and a description of DLT use cases in the regulatory technologies space. See for more details chapter 3.3.6 on Blockchain and DLT. All FG-DLT deliverables are available here: https://itu.int/en/ITU-T/focusgroups/dlt
ITU-T SG17 approved ITU-T X.1149 “Security framework of open platform for FinTech services” https://www.itu.int/rec/T-REC-X.1149/en and is working on “Security threats and requirements for digital payment services based on distributed ledger technology” (X.str-dlt).
Base specifications and related resources: http://www.xbrl.org/
XBRL International is currently developing a syntax-independent version of XBRL: the open information model. This will facilitate the exchange of information between different systems, without loss of the agreed semantics.
XBRL Europe is a non-profit organization and has been set up to foster European XBRL efforts and to implement and share common XBRL projects between its members and to liaise with European authorities and organizations. XBRL Europe has existing working groups on:
- supervisory reporting (Corep/Finrep)
- SBR (tax, annual reports, statistics)
International Financial Reporting Standards taxonomies and related resources:
International Financial Reporting Standards taxonomies and related resources:
(C.2) additional information
XBRL allows governments, regulators, institutions, private sector, etc. to build vocabularies and rules (called taxonomies) to report on different subjects, like the financial position, performance and economic viability of businesses, sustainability, gov-to-gov reporting, mortgage reporting and so on. XBRL permits the publication of structured digital financial reports, specifically matching predefined taxonomies. These may then be processed and retrieved by market participants, including analysts, supervisors, enterprise regulators, tax offices, clients, suppliers, creditors and investors.
The Netherlands standard business reporting (SBR) program, using XBRL taxonomies for business-to-government (tax-filings, annual accounts, statistics), business-to-business (especially Banks) and government-to-business interactions: see http://www.sbr-nl.nl/english/.
CEN established in 2017 the CEN/BT WG 220 ‘Fintech’. The group published a report in 2018 consisting of a standardisation mapping with some recommendations for future standardisation work. The mapping provides an opportunity to identify European, international and national standards and other initiatives related to Fintech. In the follow-up to this study, CEN will look into new standards and supporting protocols for the broad adoption and use of new technologies which contribute to the establishment of industry, consumer and market confidence. Considering that the tasks of CEN/BTWG 220 are accomplished and that there is no additional work for the working group, the CEN Technical Board has decided to disband CEN/BTWG 220 ‘FinTech’.