Fintech and Regtech Standardisation (RP2023)

(A.) Policy and legislation

(A.1) Policy objectives

Innovative IT solutions play an ever increasing and important role in the financial services sector. On the one hand, new financial technologies (‘Fintech’) are redefining the way individuals and companies save, borrow, invest, spend and protect their money by not only bringing new financial products and services to the market, but also facilitating access to these by enterprises and investors. On the other hand, by introducing state-of-the-art software and technology, they help financial services providers run their business in processing data, simplifying their market analyses, internal management, and KYC efforts. In this way, Fintech solutions, are revolutionising traditional financial sector business practices.

Other types of modern IT solutions, known as ‘Regtech’, can help enterprises meet their various regulatory obligations, in particular the reporting of data to public authorities for the purposes of financial supervision. Current reporting obligations are frequently excessively burdensome and costly due to the sheer number of these requirements, some of which are potentially duplicative and overlapping, and due to insufficient harmonisation/standardisation and occasionally a lack of clarity on what needs to be reported. Regtech solutions aim to facilitate the interpretation of requirements and subsequently help to gather the required data and transform it into the appropriate format. Apart from reporting, Regtech solutions are also available and are already used by financial institutions in the field of AML/CFT, ICT security, fraud prevention and creditworthiness assessment (CWA). Supervisory authorities use yet another group of IT tools and solutions (‘Suptech’) to simplify the verification, validation, processing, and analysis of the reported data.

In all these different ways, Fintech, including Regtech and Suptech tools, improves the quality, diversity, efficiency, and resilience of the financial system, and fosters a more competitive and innovative European financial sector. Business operations benefit from the use of standardised and innovative IT tools and solutions as they foster seamless information exchange among financial service providers, underpins trust of consumers, boosts innovation and enables compliance with financial legislation in a cost-effective way. Access to standardised data enables public authorities to perform supervision of financial institutions, monitoring of systemic risk, and market oversight more effectively and efficiently, thereby ensuring orderly markets, financial stability, investor protection and fair competition.

One of the fundamental elements necessary for the functioning of the financial system is data. Data is gathered by the providers of financial services and products for the purposes of KYC and as part of their day-to-day business operations. Data is gathered by supervisory and statistical authorities for the monitoring of the financial system. More and more often, data on market actors and investors is exchanged between financial services providers, and efforts are now being undertaken to allow for the sharing of data amongst public authorities – not least to reduce the burden on enterprises and financial services providers of having to report or provide this data. Over the last few decades, the amount and complexity of financial sector data has increased exponentially. Efforts are now being undertaken to improve and simplify the way financial data is exchanged across enterprises and authorities worldwide and reported to public authorities for the purpose of supervision. One of the solutions is to make such exchanges more automated and less dependent on human intervention However, automation requires the harmonisation/standardisation of content, meaning, terminology, tools and processes.

(A.2) EC perspective and progress report

To address these challenges, the existing EU legislative framework is regularly revised to reflect the latest developments. The EU has also undertaken a number of specific initiatives which aim to promote digital finance, Fintech, and standardisation in the financial sector.

• In terms of technical standards, in May 2019 the EU adopted 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. 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 April 2021, in its proposal for a Corporate Sustainability Reporting Directive (CSRD) as part of the Sustainable finance package, the Commission proposed to make companies’ sustainability reporting machine readable, by applying the ESEF.
• In addition, following the recommendations of the new Action Plan on the Capital Market Union (September 2020), in November 2021 the European Commission adopted the European Single Access Point (ESAP) proposal as part of the CMU package proposal. ESAP will provide EU-wide access to company data in digital formats aiming to reduce information search costs for cross-border investors and widen the investor base for companies. The ESAP will also improve the availability and accessibility of sustainability-related data.
• In September 2020, the European Commission adopted a digital finance package, including a digital finance strategy and legislative proposals on markets in crypto-assets and digital operational resilience, for the purpose of establishing 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 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.
  • The main policy initiative to promote data-driven finance is a legislative proposal on the open finance framework currently scheduled for early 2023, with the main objective to facilitate data sharing in the financial sector. In May 2022, the European Commission launched a consultation on this topic.
  • A political agreement was reached in November 2021 amongst the co-legislators regarding the pilot regime for market infrastructures based on Distributor Ledger Technology (DLT) that wish to try to trade and settle transactions in financial instruments in crypto-asset form.
  • In addition, the implementation of the Digital Operational Resilience (DORA) proposal, which is part of the digital finance strategy, will require some degree of data standardisation processing in the context of establishing a potential central database/hub/or registry connecting other national registries in accordance with the mandate set out by Article 19 DORA for the ESAs to produce a joint report assessing the feasibility of further centralisation of incident reporting through the establishment of a single EU Hub for major ICT-related incident reporting by financial entities. An analysis of any data standardisation needs in the context of a possible single EU HUB for incident reporting could be thus part of the ESAs’ overall assessment on prerequisites for the establishment of such a single EU Hub.
• November 2021 saw the adoption of the Strategy on supervisory data in EU financial services, which aims to modernise and improve the EU supervisory reporting system and will be constructed around four building blocks. Those where standardisation will play a key role are: ensuring consistent and standardised data (centred around a Common Data Dictionary); facilitating the sharing and reuse of supervisory data amongst public authorities in the EU; and improving the design of supervisory reporting requirements (including greater use of international standards and identifiers). The Implementation of these building blocks will enable a more effective and efficient use of modern technologies, including Regtech and Suptech tools, for the purpose of supervisory reporting. The Commission is also exploring the possibility of using Machine Readable and Executable (MRER) reporting requirements.

(A.3) References

• COM(2018) 109 final of 8 March 2018: FinTech Action plan: For a more competitive and innovative European financial sector.
• 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.
• COM/2020/590 final of 24 September 2020: A Capital Markets Union for people and businesses – new action plan.
• COM/2020/591 final of 24 September 2020: Digital Finance Strategy for the EU.
• COM/2021/189final Proposal for a Directive of the European Parliament and of the Council amending Directive 2013/34/EU, Directive 2004/109/EC, Directive 2006/43/EC and Regulation (EU) No 537/2014, as regards corporate sustainability reporting.
• COM(2021) 723 final Proposal for a Regulation of the European Parliament and of the Council establishing a European single access point providing centralised access to publicly available information of relevance to financial services, capital markets and sustainability.
• COM(2021) 798 final of 15 December 2021: Strategy on supervisory data in EU financial services.
• 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.

(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 (e.g. working on Blockchain).

Action 2: Develop a common data dictionary which describes the content and format of all data collected under various reporting frameworks in a structured, comprehensive, consistent, and unambiguous manner, using terms anchored in legislation to establish a clear link between collected data items and the relevant legislative requirements. The dictionary represents the ‘define once’ principle and should leverage the EU ISA² programme ‘core vocabularies‘ as a guideline.

Action 3: Set up a governance structure to maintain the data dictionary, including a subject matter experts network on supervisory reporting.

Action 4: ESMA shall continue extending the XBRL-based reporting (actually inline XBRL) of listed companies under the Transparency Directive and addressing additional (i.e. yet uncovered) parts of the annual financial report and other regulated information under future legal acts.

Action 5: Develop European standards for the support of Union legislation and policies in the field of open finance, notably as regards the digital portability of personal data in the financial sector.

(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          

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

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). CWA 16744-1:2014 European Data Point Methodology for Supervisory Reporting, CWA 16744-2:2014 Guidelines for Data Point Modelling and CWA 16744-5:2014 Mapping between Data Point Model and Multidimensional Data Model, were promoted in August 2021 to the ISO standards  ISO 5116-1:2021 ,  ISO 5116-2:2021 and ISO 5116-3:2021 respectively.  The Data Point Model is widely used in Banking and Insurance reporting in Europe, and this promoting would contribute to widespread its use in other regions. European Authorities as EBA, EIOPA, ECB are currently developing the project "Data Point Model refit" to update it

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.cencenelec.eu/areas-of-work/xfs_cwa16926_340_release/

A CEN technical committee in financial services (CEN/TC 445) is working on a European Standard for the digital portability of personal data in the insurance industry. This covers general data (e.g. name, birthdate, address, telephone, email, bank account, occupation) and business-specific data (e.g. those relevant to motor insurance, such as vehicle make/model, plate number, VIN, registration date etc.).

IEEE

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.

The IEEE Trusted Data and Artificial Intelligence Systems (AIS) Playbook for Financial Services.

The IEEE Computer Society Blockchain and Distributed Ledgers Standards Committee has several active projects focused on digital assets, electronics contracts and e-commerce through its work on 

• IEEE P3206 - Standard for Blockchain-based Digital Asset Classification
• IEEE P3207 - Standard for Blockchain-based Digital Asset Identification
• IEEE P3208 - Standard for Blockchain-based Digital Asset Exchange Model
• IEEE P3209 - Standard for Blockchain Identity Key Management
• IEEE P3801 - Standard for Blockchain-based Electronic Contracts
• IEEE P3802 - Standard for Application Technical Specification of Blockchain-based E-Commerce Transaction Evidence Collecting

The Consumer Technology Blockchain Standards Committee focused on several cryptocurrency standards which include 

• IEEE 2140.1-2020 - IEEE Standard for General Requirements for Cryptocurrency Exchanges
• IEEE 2140.5-2020 - IEEE Standard for a Custodian Framework of Cryptocurrency
• IEEE P2140.2 Standard for Security Management for Customer Cryptographic Assets on IEEE Cryptocurrency Exchanges
• IEEE P2140.3 Standard for User Identification and Anti-Money Laundering on Cryptocurrency Exchanges
• IEEE 2143.1-2020 - IEEE Standard for General Process of Cryptocurrency Payment
• IEEE P2143.2 Standard for Cryptocurrency Payment Performance Metrics
• IEEE P2143.3 Standard for Risk Control Requirements for Cryptocurrency Payment
• IEEE P2418.9 - Standard for Cryptocurrency Based Security Tokens

There are also focused standardisation activities around E-Invoice. The "E-Invoice Business Using Blockchain Technology" Working Group of the IEEE Consumer Technology is developing IEEE P2142.1 - Recommended Practice for E-Invoice Business Using Blockchain Technology 

More information is available at https://ieeesa.io/eu-rolling-plan

ITU-T

The 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:
https://www.itu.int/en/ITU-T/focusgroups/dfs/Documents/201703/ITU_FGDFS_Main-Recommendations.pdf

The 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 standardization. Three working groups have been set up under the Standardization 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” and is working on more standards including “Security threats and requirements for digital payment services based on distributed ledger technology” (X.str-dlt), “Security assurance framework for digital financial services”(X.saf-dfs).

XBRL International

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

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) 

http://xbrleurope.org

IFRS

International Financial Reporting Standards taxonomies and related resources:

https://www.ifrs.org/issued-standards/ifrs-taxonomy/

IASB

International Financial Reporting Standards   taxonomies and related resources:

https://www.ifrs.org/issued-standards/ifrs-taxonomy/

(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/.