ECB releases guidance on the licensing of fintech banks

The European Central Bank (ECB) has released a guide for the assessment of fintech credit institution licence applications. The guide is premised on the principles agreed by the ECB’s Supervisory Board in June 2017.

The ECB defines fintech banks as being those having “a business model in which the production and delivery of banking products and services are based on technology-enabled innovation”.

In arriving at the fintech bank definition, the ECB has drawn from Financial Stability Board (FSB) and the definition of a credit institution under Article 4(1) of Regulation (EU) No 575/2013 on prudential requirements for credit institutions and investment firms.

The fintech bank definition encompasses:

  • Existing banks that evolve and integrate technological innovation by developing fintech solutions in-house, acquiring fintech companies or engaging in strategic partnerships with them (through “white labelling”, outsourcing, etc.)
  • Fintech banks which are new market participants and adopt technological innovation to compete with established banks throughout the value chain, as well as existing financial service providers (e.g. payment institutions, investment firms, electronic money institutions, etc.) that extend their scope to include banking activities and can therefore be considered new market entrants requiring a banking licence.

The guide covers the considerations relevant to fintech banks under the four assessment criteria which are in line with the criteria of the general legal framework, namely:

  1. governance (suitability of the members of the management body and suitability of shareholders)
  2. internal organisation (risk management, compliance and audit frameworks)
  3. programme of operations; and
  4. capital, liquidity and solvency.

There are a number of elements throughout the guide which are fintech-specific in terms of assessing fintech bank licensing applications. From operations to capital and liquidity, the guide draws attention to the particular characteristics, high risk and volatile business environment that fintech banks will face.

As a non-exhaustive example, given that fintech banks will utilise relatively new technologies and the availability of limited historical data, benchmarks and experience, the ECB encourages that applicants prepare an exit plan to be presented to national regulators if requested on the basis of the precise model. Such plan should identify how a fintech bank applicant can cease its business operations on its own initiative, in an orderly and solvent manner, without harming consumers, causing disruption to the financial system or requiring regulatory intervention.

A follow-up public consultation on the guide to assessments of licence applications will incorporate the assessment criteria for programmes of operations and capital.

The guide is in any event subject to the provisions (as interpreted by the ECJ) of Regulation (EU) No 575/2013 and the Directive 2013/36/EU on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, and should in any event be read in conjunction with the general ECB guides related to the assessment of licence applications and fit and proper assessment.

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