Financial innovation affects all financial sector activities and increasingly reshapes the way these activities are carried out and how the related financial services are used by clients. Integration of technological innovation in financial services and markets is a continuing challenge for regulators such as the CSSF.
To embrace this major challenge, the CSSF relies mainly on three approaches:
- a proactive open regulatory approach to avoid hindering new opportunities and benefits by creating excessive regulatory barriers for innovation;
- a prudent risk-based regulatory approach in order to safeguard the role of prudential supervision of the financial sector in ensuring the safety and soundness of the financial sector with a special focus on consumer protection, market confidence and AML considerations; and
- a technology neutral approach which ensures that each project presented to the CSSF is assessed on the basis of the services effectively provided, regardless of the technology used.
It is also important for the CSSF to raise awareness on the financial innovations currently impacting the industry and to communicate its position to both the public and the industry. It is for this reason that the CSSF regularly publishes documents on financial innovation topics such as Artificial Intelligence, Cloud Computing, Robo-Advice and Digital on-boarding.
The CSSF Innovation Hub
Within the Innovation, Payments, Market Infrastructures and Governance (IPIG) Department of the CSSF, a division dedicated to Financial Innovation has been created. This division constitutes the “Innovation Hub” of the CSSF.
The CSSF is in permanent contact with market players which enables the CSSF to gain the best possible understanding of FinTech developments and expectations and to address the forthcoming challenges. The CSSF is thus promoting a constructive and open dialogue with the FinTech industry represented by both incumbent and startup firms to, among others, enable concrete realization of Financial Innovation projects.
The work of the CSSF on financial innovation
• Crypto-assets: The development of new technologies like distributed ledgers and cryptography have resulted in the creation of various types of crypto assets that may be referred to as “virtual currencies”, “cryptocurrencies” or “tokens” (e.g. so-called “payment tokens”, “investment tokens” or “utility tokens”). On 24 September 2020, the European Commission published a proposal1 of regulation on markets in crypto-assets as part of a global digital finance strategy. The CSSF actively follows the discussions on the elaboration of such a proposal and its impact on the financial sector.
• PSPs: Payment Service Providers, including payment institutions, electronic money institutions and account information service providers are governed by the Law on payment services. According to the Law on payment services, the payment institutions (PI) and electronic money institutions (EMI) must be authorized by the Ministry of Finance, on the basis of an advice given by the CSSF, while the account information service providers (AISP) must only be registered with the CSSF
• AI: AI is one of the most promising technologies, and different kinds of practical applications, especially in the financial sector, are emerging. The potential benefits that AI can bring are enormous, but these can only be achieved if the fundamentals of this technology and its underlying risks are well understood and an adequate control framework is put in place. In this context, the CSSF has performed a research study in order to better understand what Artificial Intelligence is and the related risks. The result is a document which intends to provide some basic knowledge about Artificial Intelligence and describes the different types of AI and some practical use cases for the financial sector.
• Robo-advice: In recent years, the CSSF has seen a growing number of financial institutions providing investment advice or portfolio management services to investors, in whole or in part, through automated or semi-automated tools, often referred to as “robo-advice”. Robo-advice can range from the provision of investment recommendations to services providing investment advice and automated monitoring and rebalancing of investment portfolios.
• Crowdfunding: Crowdfunding is an alternative form of financing that connects those who can give, lend or invest money directly with those who need financing for a specific project. In order to foster the development of crowdfunding platforms within the European Union, the European Parliament approved new rules on 5 October 2020, implemented via a new Regulation on Crowdfunding and a Directive amending MiFID that will enable crowdfunding platforms to easily provide services across the EU single market.
More information HERE.
Publié le 11 février 2021