On 25 May 2021, the European Securities and Markets Authority (ESMA) launched a call for evidence on digital finance. This call for evidence follows a request for technical advice to the European Supervisory Authorities (ESAs) that was issued by the European Commission (Commission) in February 2021, and which concerned three main issues: (1) the growing fragmentation of value chains in finance, (2) digital platforms and (3) groups combining financial and non-financial activities (we provided an update on this request for technical advice in our previous blog post). The purpose of the technical advice is to help the Commission to evaluate the challenges and risks attached to digital transformation prior to proposing, where relevant, amendments to the relevant legislative frameworks by mid-2022. In accordance with the scope for technical advice, the call for evidence is divided into three main parts and covers:

  • More fragmented or non-integrated value chains (Qs 1-15). Acknowledging an increased dependency of financial firms on third-parties, notably technology firms, for the provision of financial services (e.g. cloud outsourcing arrangements, data analytics) and that such arrangements may introduce new risks and not be fully captured by the existing regulatory framework, ESMA seeks evidence on new material developments in the evolution and fragmentation of value chains and the extent to which this development introduces new risks and/or create regulatory and supervisory challenges.
  • Platforms and bundling of various financial services (Qs 16-26). Noting that platforms can market and provide access to multiple different financial services, often from different financial firms, and that the relevant financial services bundled on the platform may fall under separate sectorial regulations or outside of the scope of EU financial services regulation, ESMA seeks feedback on the use of digital platforms in the EU and on the extent to which such use introduces new risks and/or creates regulatory and supervisory challenges.
  • Risks of groups combining different activities (Qs 27-33). Noting that existing sectoral financial legislation already includes provisions relating to group supervision, it does not provide a framework for coordinated supervision on a cross-sectoral basis for emerging types of mixed activity groups, ESMA seeks feedback whether: (1) large technology companies as mixed-activity groups should be supervised specifically, (2) how interdependencies within the groups, and potential risks stemming from, can be identified and addressed, and (3) how supervisory cooperation can be improved for these groups.

ESMA’s call for evidence is therefore directed to a broad group of stakeholders, including:

  • Financial firms relying on third-parties, in particular technology firms, to fulfil critical or important functions. For the purpose of this call for evidence, by “financial firm” ESMA considers any firm falling within its remit by means of the relevant sectoral legislation (e.g. investment firms, central counterparties, alternative investment fund managers, market operators of trading venues, administrators of critical benchmarks and other).
  • Third-parties, in particular technology firms, on which financial firms rely to fulfil critical or important functions.
  • Technology firms providing financial services, either directly or through partnerships with financial firms. For the purpose of this call for evidence, “financial service” or “financial product” means any financial service and product falling within ESMA’s remit, i.e., any financial service and product provided by a financial firm (and excluding banking, payment, credit and insurance services).
  • Platforms marketing or providing access to different financial services. For the purpose of this call for evidence, a term “platform” means any digital platform that enables financial firms directly (or indirectly using a regulated or unregulated intermediary) to market to investors, and/or conclude with investors contracts for, financial products and services (e.g. technical infrastructures used by financial firms to market or distribute different financial products and services, and enabling investors to access products and services provided by different financial firms).
  • Groups combining financial and non-financial activities, also known as mixed activity groups.

Stakeholders interested in participating in this call for evidence have until 1 August 2021 to send their submissions. ESMA, together with other ESAs, is required to deliver the technical advice to the Commission by 31 January 2022.