Interview with MEP Cora van Nieuwenhuizen: “Competition is pushing fintech startups and big banks together”

Interview with MEP Cora van Nieuwenhuizen: “Competition is pushing fintech startups and big banks together” sat down with Cora van Nieuwenhuizen, a Member of the European Parliament from the Netherlands and a member of the Alliance of Liberals and Democrats for Europe (ALDE) Party. She has worked on and amended EU legislation related to financial benchmarks, controversial bank capital rules, and value added tax. However, she is also one of the most strident voices in the European Parliament in support of technological innovation and the expansion of fintech in the banking sector.

Ms. van Nieuwenhuizen, also a member of the Netherland’s VVD party, will be joining the cabinet of Prime Minister Mark Rutte’s government later this month. She offered her thoughts on financial innovation, data privacy, consumer protection, and Brexit before leaving Brussels and heading to The Hague.

This interview has been edited and condensed for clarity.

Q: You serve as a parliamentarian and lawmaker in the European Parliament’s Committee on Economic and Monetary Affairs (ECON), as well as in the Committee on Industry, Research, and Energy (ITRE). What have your experiences there taught you about the EU’s approach to regulating fintech?

Cora Van Nieuwenhuizen: When I first started to work here in Brussels, I noticed that all of the work we did in were doing in ECON was focussed on the past, and especially the 2008 financial crisis. We were very busy with all kinds of complicated legislation to stop that from ever happening again. But in ITRE, on the other hand, it’s all about new technologies that are rapidly changing the world. I thought it was strange we didn’t talk about that at all when we drafted economic and financial legislation.

We all know that legislation is always late to the game, but I thought we should try to keep up as much as possible. Fintech has such a big impact on the financial sector that we have to debate inside of Europe. So, I drafted an own-initiative report that spelled out developments in fintech and how it relates to the legislation and rules we work on in the European Parliament.

Q: And what did you conclude?

CVN: The first point of the report was to identify the key technologies that will drive change, especially around the growth of big data, machine learning, and blockchain in the financial sector. The possibilities you have there are really exploding and changing the whole sector.

On top of that, if you look at investment patterns, investment in FinTech is growing very fast, but much more outside Europe than within. In Europe, the most investment in fintech is in the United Kingdom. Now, with Brexit on the table, we need to figure out where Europe will end up after all of this. So I tried to identify the primary obstacles and what we can do to make sure that Europe keeps its share of the global economy.

Q: What obstacles are exactly standing in their way?

CVN: Our legislation isn’t always that innovation friendly. I helped work and amend the Markets in Financial Instruments Directive (MiFID), and MEPs had a long debate whether requirements on client communication through “a durable medium” could be done in anything besides paper. At first, paper was the only material considered to be a valid interpretation of the rules. But in a digitized world, where only some products are available on the Internet, that kind of rule just doesn’t make sense.

That’s just one example. I think we should introduce an innovation principle, with each new piece of legislation, there should be an impact assessment on how we’re impacting innovation. Is there more room for experiments? Is it technology neutral?

Legislation doesn’t need to be overly prescriptive on the how. It should just focus on what needs to be done. If you are too prescriptive, everything is outdated within two years.

Q: You have had a lot of experience working with the banking sector. What role do you think they will play in pushing forward innovation?

CVN: This has changed quite rapidly. Just a few years ago, many big banks were very conservative on fintech. Maybe they would appoint a Chief Innovation Officer, but to a large extent, that was just window dressing. It meant improving their websites and having an app here and there, not changing their business models.

But now, even the smallest, most conservative bank feels the sense of urgency. Fintech isn’t something that will just pass by, and, if you’re not at the table, you’re on the menu. Fintech offers services that are quicker, cheaper, more convenient and offer more choice. There’s more transparency, and there’s better risk management. These are all good things that citizens and businesses want, and because of that, they will use them. If banks don’t do it, somebody else will.

So, what we see now is more and more of a hybrid model that’s pushing together incumbents and startups, since the competition is so stiff.

Q: Does that mean startups have the upper hand?

CVN: Maybe. Incumbents notice they need to find new ways to be really innovative, but startups are also realizing they need to comply with the rules. That can range from anything like the General Data Protection Regulation to rules on ePrivacy and money laundering. Then there are new cybersecurity risks that are growing and that the EU is preparing to regulate. It’s very difficult to do all this work on your own as a small startup. If you really want to become a scale-up, the help of a big company is almost necessary.

That said, I’ve heard that some BigTech firms have hired hundreds of people to build software that ensures they comply with the GDPR. How on Earth could a small SME be able to compete with that?

We also don’t want one of these smaller European companies to be forced to purchase software from BigTechs to comply with the rules.

Q: So, the rules are too complicated?

CVN: Although we try, there’s no legislator that ever intends to make legislation as hard as possible. But, things are complicated. Very often, pieces of legislation end up getting more complex and detailed. Regulators and supervisors are also not the most innovative.

That said, we should continuously try to look for opportunities to simplify. For myself, and also for citizens, it’s not important if it’s a young hip startup offering a service, or if it’s a large incumbent, or even a BigTech. If we want to prevent bad things from happening and pare down risks, it doesn’t matter who’s the actor. Focus on the activities rather than the legal entities. If a bank is allowed to do something, the startups should be too, and vice versa.

Q: There’s a good deal of discussion and anxiety around customer data security across the world these days. What do you see as the EU’s political role in meeting this concerns?

CVN: Privacy is still a very European conversation. But the debate worldwide is changing. People may realize that they have nothing to hide, but they still have a lot to protect. All of their data can be used for good, to give a more tailor-made online experience, but it can also be used against your interests. It starts in Europe, and our privacy frameworks like the GDPR and the NIS could prove a global standard. Other countries realize this more and more.

What we should do in Europe, however, is to share more of our information across borders.

No individual bank or insurer, and also no individual EU Member State, can keep up with all the growing cyber risks. Preferably, this would happen on an international scale through the OECD, but that’s of course more difficult. At least, as Europeans, we should work harder on this. We could give broader mandate for a European Supervisory Authority on cybersecurity and step up on digital certification.

Q: So you think there needs to be more oversight for EU authorities on data privacy?

CVN: Yes. It’s strange that every single plastic toy that comes from China to European markets has a tiny safety certification marked on it, while all digital products can be downloaded for free with all kinds of consequences. And it’s not just for regular products and services, there is but is also fraud from supposed cybersecurity providers. There’s no accreditation here at all, and only BigTechs have the capacity to build their own software to rubber stamp that they are compliant with privacy and cybersecurity rules.

For safety reasons, we don’t want our own companies to turn to other service providers to handle regulatory compliance.

Q: Does the same apply for cryptocurrencies?

CVN: It is far too silent in Europe on this question. China is heavily involved in the debate, and even Mexico, Russia, and Japan are too. But in Europe, there is too much silence. I asked Mario Draghi when he was in Brussels, and he admitted that there hasn’t even been a discussion in the board of the ECB on the topic. I was astonished.

I have strong doubts about permitting the anonymity of virtual currencies. I embrace permission-based blockchain, but the open versions are very appealing to criminals and terrorist financing. 30% of all criminal transactions are in bitcoin now, and giving too much leeway could create a whole new shadow economy in Europe. Complete silence should not be allowed, and politicians in Europe need to get more active in these debates.

Q: European fintechs are predominantly headquartered in the UK. What’ll happen to their businesses after Brexit?

CVN: Well, I’m happy the Commission followed my advice and the calls of the Parliament and is pushing for fintechs to be able to passport their services across the Single Market like banks. The Commission’s working on that now, so you can have a European license, and that’s very relevant for anyone in the financial services industry.

The majority of fintechs are in the UK, it’ll be just as important for them as it will for the traditional players to be able to passport fintech services. But, on top of that, there is a lot of uncertainty about what will happen with the equivalence regime. If the rules change, it’ll be important to see how third countries with important financial services firms, such as Norway and Switzerland, will be impacted. It’s not just the UK and the US to consider here. That said, there’s still a lot we just don’t know yet.

Q: What should passporting for European fintechs look like?

Again, it’s important we focus on regulating activities, not legal entities. If it’s a fintech giving roboadvice, for example, I don’t care whether if the roboadviser is legally attached to a bank, or to an insurance company, or to a new fintech startup. “Same services, same risks, same rules.” If it’s about payments, we all have to comply with the same rules.

Q: And do you think that other EU lawmakers are of the same mindset?

All MEPs see that technological innovation is inevitable, apart from the one group that always says no. They mean it comes with risks — fintech and new technologies will cause losses of jobs. We all know that. Anything that’s repetitive, and that can be done by a machine, will be done by a machine.

But that only should be a stimulation and encouragement to support where the new jobs are created. That means we need to invest in fintech as well and to make sure that Europe remains open and attractive for new companies. There is ultimately broad understanding of that in the EU, from the left to the liberal and right sides.

Also read:

Fintech startups and banks face off on new rules over European payments and data access

European data miners: “We were told to relocate our servers to the US”

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