On 28 June, the European Commission published legislative proposals for a new open finance framework and a digital euro. The aim of the open finance framework is to enable sharing and third party access to customer data for a wide range of financial sectors and products, while the goal of the Digital Euro is to create a robust and future-proof digital version of the common currency, level the playing field in the digital payments market and reinforce EU monetary sovereignty.
Finance Watch, the pan-European NGO advocating to make finance serve society, finds the open finance proposal – officially called the Financial Data Access Framework – lacks important safeguards to ensure that the increased data access and sharing enabled by the new framework do not come at the detriment of consumers. The proposal recognises the need for a “data use perimeter” that sets out how a consumer’s personal data can be used in the provision of financial services, but the measures put forward by the Commission today are not enough. To protect EU citizens from mis-selling and financial exclusion, legally binding rules are needed rather than guidelines. In addition, important use cases of consumer data are missing from the “data use perimeter” proposals, in particular data used for suitability and appropriateness assessments when selling retail investment products under the Markets in Financial Instruments Directive (MiFID II).
Peter Norwood, Senior Research & Advocacy Officer at Finance Watch, said:
“I’m concerned by the lack of safeguards against the potential misuse of consumer data in today’s proposal. The risk of mis-selling and financial exclusion is just too high to rely on guidelines alone – legally binding rules are needed.”
Regarding the Digital Euro, Finance Watch finds that the Commission’s proposal is largely consistent with the framework that has been signposted by the European Central Bank (ECB) for some time. Subject to some improvements, Finance Watch thinks it has the potential to reshape European retail payments and bring considerable benefits for European citizens. Finance Watch believes that the Digital Euro should be universally accessible free of charge to EU citizens and that this needs to be made more explicit in the legislative text. Finance Watch argues the rules should leave no ambiguity over the status of the Digital Euro as legal tender. At the same time, Finance Watch emphasises the importance of preserving the legal tender status of cash, a means of payment upon which many vulnerable consumers will remain dependent, and therefore welcomes the Commission’s proposal today on this issue which regulates and reinforces the universal acceptance and access to cash. Finally, Finance Watch calls on policymakers to strengthen rules regarding online privacy.
Christian M. Stiefmüller, Senior Research and Advocacy Advisor at Finance Watch, said:
“After all the sound and fury in the run-up to its publication this has turned out to be a remarkably balanced proposal. Nonetheless, improvements are needed: citizens’ rights to access and use the Digital Euro, free of charge, need to be reinforced; all payments services providers should be obliged, in due course, to distribute the Digital Euro, with no strings attached; and finally, if citizens are expected to trust the Digital Euro, the rules must go further to protect their privacy.”
Finance Watch’s assessment of today’s proposals in detail:
Open Finance (Financial Data Access Framework)
- Disappointingly, the proposal does not include rules spelling out what data can and cannot be used for different use cases in the provision of financial services. This is crucial as the absence of such rules can lead to the misuse of consumer data, which can result in mis-selling and/or financial exclusion. Article 7 of this proposal includes a call for guidelines from the European Supervisory Authorities (ESAs) on how firms should use consumer data for creditworthiness assessments (CWAs) and for risk assessment, and pricing of life and health insurance. Finance Watch argues that this is not sufficient because guidelines are not the appropriate legal instrument in this context – legally binding measures at level 1 or level 2 are needed instead. The ineffectiveness of guidelines alone is backed by evidence in a Finance Watch study published in 2022 (see pages 18-19). This study shows that the already existing EBA Guidelines on Loan Origination and Monitoring (which includes guidelines on CWAs) have not been very effective in preventing the misuse of irrelevant data for CWAs. In addition, other important use cases of consumer data are missing in today’s “data use perimeter” proposal, in particular data used for suitability and appropriateness assessments when selling retail investment products under MiFID II.
- Another shortcoming of the proposal is the lack of rules clearly and explicitly stipulating that consumers must still be able to access financial products when they do not consent to their data being used or shared. Without making this explicit, there is a real risk of financial exclusion.
- Having said that, Finance Watch is glad to see that this proposal gives consumers adequate means to provide and withdraw consent to access to their data, with market participants required to provide consumers with financial data access permission dashboards. Moreover, data can only be accessed by regulated financial institutions or by firms subject to a dedicated Financial Information Service Providers’ (FISP) authorisation. In the interest of protecting citizens’ data and enforcing these rules effectively it would appear appropriate to oblige FISPs to hold and process customer data in the EU.
- The Digital Euro should be universally accessible and free of charge to the Eurozone, and, ultimately, all European Union citizens. This should include all types of (basic) payment transactions, online and offline, between natural persons and with merchants and businesses. Finance Watch notes that this requirement is covered in the proposal but may require further clarification, for example regarding indirect fees.
- The option for citizens to hold Digital Euro with public-sector service providers should not be a notional requirement: Member States should be obliged not only to nominate entities that would be responsible for the delivery of these services but also to ensure that such nominated entities are capable, in terms of resources and geographical presence, of delivering their mandate in a comprehensive and effective manner.
- There should be no ambiguity over the status of the Digital Euro as legal tender. The proposed exceptions from the mandatory acceptance of Digital Euro payments are well justified on the grounds of proportionality but further exceptions should be restricted to what is needed to accommodate EU and Member States’ legal prerogatives and relevant case law of the European Court of Justice (ECJ).
- The success of the Digital Euro depends largely on its widespread acceptance and use. In a notoriously concentrated market, the cooperation of major private-sector providers of payment services is of particular importance. The obligation to distribute the Digital Euro, alongside existing private-sector payment solutions (e-money), should therefore be expanded to cover all payment service providers authorised in the European Union, subject of course to phase-in arrangements and limited exceptions, where appropriate.
- The acceptance of the Digital Euro also relies, to a large extent, on its compatibility with the required hardware and software. The European Union should engage actively with global technology providers, especially mobile phones manufacturers, to ensure that the necessary technical standards are developed and implemented as a matter of urgency. Legislative measures to support this effort, similar to the successful standardisation of the common charging port for mobile devices by way of the revised Radio Equipment Directive, may be necessary and should be explored in due course.
- European citizens will trust, and adopt the Digital Euro only if they are confident that their privacy is adequately protected. Finance Watch accepts that some concessions will have to be made to ensure that the Digital Euro does not become a conduit for illegal activities, such as money laundering and financing of terrorism. While the proposal sets out a potentially workable approach to offline payments its proposed treatment of online payments could be improved.
- Finance Watch concurs with the view that sudden withdrawals of deposits might pose a potential systemic risk for the banking sector arising from and agrees, in principle, with the need to apply holding limits. These limits should not be more restrictive than those already in place for similar applications and they should be set, in all cases, by the European Central Bank.
– Ends –
Notes to editors
Finance Watch will prepare detailed policy briefs for both of these files as they enter the next stage of the legislative process.
To arrange an interview with Peter Norwood or Christian M. Stiefmüller, please contact Alison Burns at firstname.lastname@example.org or call on +32 (0)471577233
About Finance Watch
Finance Watch is an independently funded public interest association dedicated to making finance work for the good of society. Its mission is to strengthen the voice of society in the reform of financial regulation by conducting advocacy and presenting public interest arguments to lawmakers and the public. Finance Watch’s members include consumer groups, housing associations, trade unions, NGOs, financial experts, academics and other civil society groups that collectively represent a large number of European citizens. Finance Watch’s founding principles state that finance is essential for society in bringing capital to productive use in a transparent and sustainable manner, but that the legitimate pursuit of private interests by the financial industry should not be conducted to the detriment of society.
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