KEY POINTS

  • The financial technology sector is booming, and Europe is a leading region for growth. VC-backed fintech companies in Europe raised £1.0 billion ($1.5 billion) in funding across 125 deals in 2015. 
  • With this boom in funding comes a need to regulate the nascent industry. There are a variety of approaches — active, passive, and restrictive — that regulators can take. The EU and the UK, in particular, have taken an active approach, in order to encourage growth.
    • The regulation that will have the most impact on the European fintech market going forward is the Second Directive on Payment Services (PSD2), which will force banks to open up their systems and data to third-party service providers. This should allow for the development of money management platforms and third-party online payment mechanisms.
    • The EU is also looking ahead with the Green Paper on retail banking, which could create more competition across retail financial services. The Paper is a call for input on how to create a better-integrated market across Europe for cross-border sales of retail financial and insurance products.
  • The UK's Financial Conduct Authority (FCA) is a model for active regulation. The FCA is actively promoting its approach to regulation as a model for other countries to follow. One initiative is Project Innovate, a collaboration between the FCA and startups to help fintechs comply with regulation whilst keeping the FCA up on the latest developments in fintech.
  • A new UK savings product, called the IFISA, is an example of what can be achieved with an active regulatory approach. The IFISA is a savings account developed through collaboration between the UK government and the peer-to-peer (P2P) lending industry via the FCA. It will bring P2P lending into the mainstream, whilst boosting lending to small businesses. 

The EU Leads Fintech Regulation

The fintech industry is booming. Global VC-backed fintech investment grew 106% to reach £10 billion ($13.8 billion) in 2015, according to KPMG. And while Europe only accounted for €1.4 billion ($1.5 billion) of that total — just 11% of global funding — the region is becoming a fintech powerhouse with deal activity rising 30% year-over-year (YoY). To help propel continued growth, various governments in the region are putting regulations and policy frameworks in place that should nurture a fertile environment for fintech.

Fintech companies provide technologies that aim to disrupt the financial services industry by making financial products [...]