Regulation can be critical to unlocking new business models where the technology has moved quicker than the market structure, for example by providing necessary "rules of the road". Take the EU Regulation on Markets in Crypto Assets (MiCA) – in some senses the law provides clarity where there has been uncertainty, but it is also heavy-handed in places such as its ban on interest-bearing crypto assets.
The EU could have leveraged the significant work being done on models of regulation that instead of being reactive and blunt – such as banning or limiting activity – are anticipatory, inclusive, experimental and proportionate. The challenge is that very few policymakers, whether in national governments or at an EU level, have the personal incentive to be creative and take a “risk on” approach to policy, particularly when it comes to new and potentially disruptive technology.
A number of the recommendations put forward in the report of the Scale-Up Europe community aim at working towards more harmonization in legislations and regulation across Europe. This is a key element to enable our startups to scale up outside of their home country and master that process from 1 to 100 that is crucial to compete on the global stage. This will allow us to unleash innovation brought about by EU startups and reach the indispensable goals of the future of Europe.
Innovation is the first most important driver of future growth and jobs, provides solutions for a sustainable economic model aligned with our climate, and is the cornerstone of our technological sovereignty. I have no doubt that we will collectively overcome the obstacles and seize the opportunities ahead.
There are two priorities here. The first is to show clarity and conviction of leadership at an EU level - to identify the levers that policymakers have available, including funding but also well beyond it, and to ensure they are all focused on the same objective of promoting innovation. The fact that startup policy is divided between several Commissioners is not helpful here, but isn't going to change .
The second is to recognise that key startup policies such as employment law, company law and taxation will always be largely national competencies, not EU level ones. Instead, campaigns like #notoptional are spotlighting key issues and showing member states what best in class looks like – encouraging them to reform and reap the rewards of doing so.
There are three elements that need to be present to make Europe a strong player in technology: capital, talent, and a supportive business environment. We’re making good progress on all of those, but there’s always more that can be done. In the past year, we’ve seen governments across the continent publish AI and hi-tech strategies which reflect these needs and, broadly, make the right suggestions. The challenge now is delivering on those promises.
The banking sector is heavily regulated and rightly so. We are in charge of people’s money. This is a big responsibility. But there are firms coming into the market who are also in charge of people’s money that are not regulated to the same standards because they are not banks.
Take, e-money firms or stablecoins that might be introduced. These are not regulated to the same standards as banks currently, yet consumers are not always aware of this. A consumer may not realise, for example, that the Financial Services Compensation Scheme does not apply to these firms. Similarly, firms that extend credit should be regulated to the same standards whether their product is called a credit card or buy-now-pay-later.
Fintech in Europe benefits from both great regulators like the FCA who are willing to foster innovation in a constructive way through things like the regulatory sandbox, and a brilliant diverse talent pool supported by proximity to traditional financial centres like London. Europe is the perfect storm of complex regulation, fragmented markets and lots of legacy technology. This is combined with demanding customers who expect more from their financial services providers.
There is also a healthy approach from consumers, businesses and regulators towards digital currency. This is an industry that’s rapidly converging with traditional fintech. I really believe that digital currency, particularly stablecoins and Central Bank Digital Currencies (CBDCs), is part of the evolution of our monetary systems. We can expect to see the continued convergence of finance and fintech with digital currency—which will unlock new business models that we’re only just beginning to imagine.
That’s why all regulations that we proposed are there to increase the trust that users put in technology. A large part of these rules are also about limiting the power of the largest platforms specifically to give smaller players a chance to make it. That’s what we do for instance when we ask large marketplaces to share their data with the small sellers that they host. And last but not least, we’ve seen it in many other areas: what helps companies to grow is to have one clear set of “Dos and Don’ts” that lasts in time, instead of 27 different sets of rules. Because that makes it much more difficult to grow.