24 May 2024

Harnessing the momentum of the European elections for financial regulation

At a panel discussion at the House of Finance in the run-up to the European elections, experts and politicians call for consumer-oriented financial regulation

In early June, some 350 million eligible voters will cast their ballots for a new European Parliament that will help shape the supranational legislative process for the next five years. They are also all consumers. What do they see as the most striking changes in the digitalization of banking and finance? With this question, the panel discussion “In Zukunft nur noch digital und dezentral?”, co-organized by the Policy Center of the Leibniz Institute for Financial Research SAFE and moderated by Detlef Fechtner, Chief Political Correspondent of the Frankfurt-based Börsen-Zeitung and member of the SAFE Board of Trustees, started on May 15 at the House of Finance.

Typical European and German consumers are very traditional, noted René Repasi, Member of the European Parliament and Professor of Public and Private Interests at Erasmus University Rotterdam. “The traditional paper savings account is still preferred, which is a problem in times of higher interest rates and inflation,” Repasi said. In the next five years after the European elections, the balancing act will be to create effective consumer protection while not over-regulating the market so that providers can continue to develop. Consumers should be encouraged to take advantage of new ways to participate in the financial market, as was recently the case with the Payment for Order Flow (PFOF) model. However, consumers are still skeptical when it comes to digital business practices, Repasi said.

“Patchwork of payment technologies”

Europe resembles a “patchwork of payment technologies that needs to be tackled holistically,” said Gregor Roth, Head of Transaction Management at DZ BANK. However, the approaches currently being discussed, such as the digital euro, are “a solution to a problem we don’t have. Ongoing digitization is not making business models and processes faster, but rather broader. In these processes, customers are focusing their attention on what is missing next, and we will have to deal with that,” Roth said.

Carolina Melches, responsible for digitalization in the financial sector, financial innovation & fintech at the German association Finanzwende, emphasized that the diversity and number of players in the financial market has increased enormously. Many fintech companies focus on individual aspects of the value chain, such as securities trading or payment services. This development is much more advanced in the US and China than in Europe. “For us, this is a glimpse into the future,” Melches said. With the European elections, the time has come to define new rules for the financial market. “There are gaps, for example with BigTechs, which already have too much influence on consumer data,” Melches continued. There is currently no regulation that addresses the activities of these large digital companies. With a new EU Parliament, there is a great opportunity to “proactively shape financial market regulation and not just reactively adjust it.”

“Shortcomings can be eliminated with digital money and tokenized deposits”

Since the discussion began, the requirements for a digital euro have changed significantly. While the initial goal was to maintain sovereignty over money, current payment systems are expensive and slow by international standards and require the use of multiple payment methods, from mobile applications to debit and credit cards. “Many of these shortcomings can be eliminated with digital money and tokenized deposits. The innovation potential is huge and could become a digitalization boost for the entire European economy, with benefits beyond,” said Joachim Wuermeling, former Bundesbank board member, now Professor at ESMT Berlin and SAFE Senior Fellow. Digitalization is not an end but brings greater freedom of choice for consumers. “Creating a regulatory framework for this will be a major task for the European Parliament and the EU Commission in order to generate further benefits without increasing risks,” Wuermeling said.