EU Parliament: how to find the balance between the banking sector and digital currencies

The Policy Department of the European Parliament (Econ) has published a report about competition in the field of FinTech. The document was prepared by the Policy Department for Economic, Scientific, and Quality of Life. It contains the results of studies, carried out since the spring of 2017.

This 136-page report contains a lot of valuable and detailed information. Particular attention was focused on the issue of crypto competitiveness, which can bring challenges to the traditional financial system.

Undermining the establishment

According to the authors, Bitcoin and other independent cryptos can suffer if centralized institutions, such as banks, start issuing their own cryptocurrencies. Possessing some power, they are capable enough of limiting competition in this market. For example, central banks and similar structures can deprive crypto markets of the access to financial institutions, by blocking access to exchanges or wallets for the users or by instituting denials of service.

Against the backdrop of great crypto attention, it was easy to overlook the more global signals in the Econ study.

Econ warns — FinTech is dangerous! It can sound strange, but it's especially dangerous for the financial establishment. The weakening of control by the established financial institutions, which are mostly “anti-competitive forces,” means the breakthrough of new “pro-competitive” players to the market, capable of outranking the former ones. There is a clear warning about possible fundamental changes which can be read between the lines of this report.

Researching, monitoring, avoiding barriers

The record shows that a rapid and cardinal response to the innovation from authorities often turns out to be wrong, and even a failure in the long terms. The question of strict crypto prohibition in some countries is a striking example of such a reaction. Econ states that "research" and "careful monitoring" of the market development is that they need to rely on to manage competition issues in the field of FinTech.

All you need is the balance

It is widely known that financial technologies are diverse and can be applied to various industries. But one can not develop the same set of rules for regulating and creating a competitive atmosphere for everything. According to Econ, there are some industries with strict regulation and some of them with a different approach to monopoly control. And there is a third approach — a hybrid one.

Econ experts believe that the markets don’t require any drastic changes, but we should remember about monitoring: the outlook of the industries should be broader since they can go beyond the limits.  Anyway, the reforms must not affect the competition level. Every initiative, related to financial regulation, should begin with the assessment of its impact on the market: what will change in the competition level? Currently, regulators are required to conduct such an evaluation of the consequences. Unfortunately, their actions are not meaningful enough yet.

The symbiosis is the key

All the mentioned above brings Econ to a conclusion: there must be a joint and coordinated work of regulators and antimonopoly services — it is essential for the fintech market development. Such cooperation does not exist today, but there are reasonable chances for it.

According to this report, the word that best defines the current state of FinTech services is ‘change’. Many industries require financial stability, consumer and information protection — but we should also take into account the protection of competition. It is necessary to find a balance between regulation and competition, come to a consensus, develop flexible measures and keep on moving forward.