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Third-Country Regime and Equivalence: FinTechs

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Abstract

While equivalence decisions are a well-known feature of EU/EEA financial regulation, EU/EEA regulatory law has not yet introduced FinTech-specific equivalence assessments. This article develops a new policy approach that allows to build on the tied-agent concept and extends it to third-country FinTechs in accordance with equivalence principles. This new regime is built on the premise that, within its scope, third-country FinTechs should only be granted market access to an EU/EEA Member State if the advantages of granting such access are so great that they can compensate for the possible risks of reduced direct access by the competent supervisory authorities in the EU/EEA to third-country FinTechs. This requires a substantial interest in the promotion of the corresponding technical solution of the third-country FinTech in connection with the provision of regulated services in an EU/EEA Member State, provided that the European Commission has adopted an equivalence decision with regard to the FinTech’s home country, the FinTech acts as a tied agent of an EU/EEA-based investment firm or credit institution, and the supervisory authority competent for the supervision of such investment firm or credit institution has entered into a cooperation agreement with the competent supervisory authority of the FinTech’s home country.

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Notes

  1. Lehmann and Zetzsche (2016), p 1017; Busch and Louisse (2017), paras. 10.23–26.

  2. Arts. 107(4), 114 et seq. Regulation (EU) No 575/2013.

  3. Arts. 46–49 MiFIR.

  4. Art. 25(6) Regulation (EU) No 648/2012.

  5. Art. 172 Directive (EU) No 138/2009.

  6. Regulation (EU) 2023/1114.

  7. Regulation (EU) 2022/858.

  8. Recital 6 DLT Pilot Regime Regulation.

  9. European Commission (2018), p 2, n. 1.

  10. FSB (2017), p 7.

  11. See, e.g., ECB (2018a), p 2; ESMA (2019), para. 8; ESA (2022), p 109; Uña et al. (2023), p 3.

  12. See ESMA (2019), para. 38; EBA (2017), para. 43.

  13. Arner et al. (2016), p 10.

  14. FSB (2017), p 8.

  15. European Commission (2018), p 2.

  16. Ibid.

  17. Regulation (EU) 2020/1503.

  18. Directive (EU) 2015/2366.

  19. Recitals 28 and 93 PSD II.

  20. See Recital 21 and Art. 98(2)(d) PSD II; Recitals 9 and 10 DLT Pilot Regime Regulation; ECB (2018a), p 1; European Commission (2018), p 10.

  21. See Art. 9(1) MiFID II in conjunction with Art. 91(1) CRD IV; see, in detail, ESMA and EBA (2021).

  22. See ECB (2019), p 7; ESA (2022), para. 108.

  23. Credit institutions within the meaning of Art. 4(1)(1) and (1)(27) of Regulation (EU) No 575/2013 are subject to certain parts of MiFID II in accordance with Art. 1(4) MiFID II, including the regulatory requirements for the appointment of tied agents pursuant to Art. 29 MiFID II.

  24. See also ESMA (2022), paras. 20 and 21.b.

  25. Directive 2014/65/EU.

  26. Art. 29(2), third subparagraph MiFID II; see also ESMA (2022), para. 26.

  27. Art. 29(3), third subparagraph MiFID II.

  28. ESMA (2022), para. 21.a.; ESMA (2017a), para. 4.c.

  29. This does not apply to credit institutions pursuant to Art. 1(4)(b) MiFID II.

  30. See also ESMA (2022), para. 21.d., for ESMA’s expectation on what an investment firm should assess if a tied agent holds money and/or financial instruments.

  31. For Austria, Ireland or Germany, see Section 36 of the Austrian Securities Supervisory Act (Wertpapieraufsichtsgesetz); Section 25I(9) of the Irish Investment Intermediaries Act 1995; Section 25e of the German Banking Act (Kreditwesengesetz); Section 28 of the German Securities Institution Act (Wertpapierinstitutsgesetz).

  32. ESMA (2022), para. 16.

  33. See European Commission (1997), pp 13–20.

  34. Art. 3(1)(b) MiFID II. This optional exemption has, e.g., been implemented in Germany, see Section 3(1) no. 11 of the German Securities Institution Act and Section 2(6) no. 8 of the German Banking Act.

  35. Government Office for Science, FinTech Futures, A report by the UK Government Chief Scientific Adviser, 2015, p 52.

  36. FCA (2023); see also Ringe and Ruof (2020), pp 607–611.

  37. FCA (2022).

  38. BaFin (2016), p 13; Branson (2022).

  39. Roth (2022), p 376.

  40. Arts. 4(2) or (3), 5(2)-(9) and 6(1), second subparagraph DLT Pilot Regime Regulation; see also Recital 6 DLT Pilot Regime Regulation.

  41. See ESMA (2022), paras. 22.d., 24 and 25.

  42. EBA (2019), para. 63.

  43. For Germany, see BaFin (2019).

  44. Regulation (EU) No 600/2014.

  45. See Nemeczek and Pitz (2018), pp 455–457.

  46. For further details, see Pennesi (2022), pp 131–141.

  47. See Section 2(5) of the German Banking Act.

  48. BaFin (2019), at 2.

  49. Ibid., 2.1.

  50. Ibid., 2.2.

  51. See, e.g., Art. 41(2), second subparagraph MiFID II.

  52. See Sect. 3.2 above.

  53. Sethe (2014), p 630; Nemeczek and Pitz (2018), p 446.

  54. See Sect. 3.1 above.

  55. Directive 2013/36/EU.

  56. See above at Sect. 2.

  57. See, e.g., Sect. 3.4 above.

  58. See FCA (2022).

  59. See, e.g., Arts. 4(4)(a) or 5(10)(a) DLT Pilot Regime Regulation.

  60. See Sect. 3.2 above.

  61. See Sect. 4.6 below.

  62. See Section 53(1) of the German Banking Act.

  63. Vahldiek (2023), § 53, para. 94.

  64. See Sethe (2014), p 630; Nemeczek and Pitz (2018), p 464.

  65. See Sect. 4.1 above.

  66. Another example of an equivalence decision made dependent on political considerations is Commission Implementing Decision (EU) 2018/2047, which explicitly states, in Recital 32, that to ‘ensure the integrity of financial markets in the Union in light, in particular, of the progress made towards the establishment of a common institutional framework through which Switzerland participates in the Single Market of the Union, this Decision should expire on 30 June 2019’ [emphasis added]. See also Pennesi (2022), pp 107–108, regarding political problems with regard to relocation decisions.

  67. ECB (2018b), p 7.

  68. ESMA (2017b), paras. 31–36.

  69. EBA (2018), p 5.

  70. Recital 41 MiFIR.

  71. Cf. Sethe (2014), p 624; Nemeczek and Pitz (2018), p 446.

  72. Sethe (2014), p 625; Nemeczek and Pitz (2018), p 447.

  73. See Art. 47(1), second subparagraph (a) MiFIR.

  74. Art. 47(1), second subparagraph (e) MiFIR.

  75. See Sect. 4.4. below.

  76. Art. 47(2)(d) MiFIR.

  77. Directive 2014/59/EU.

  78. Cf. Art. 47(2)(a) MiFIR.

  79. Cf. Art. 47(2)(c) MiFIR.

  80. See Sect. 3.1 above.

  81. Cf. Art. 5(1)(a) Commission Delegated Regulation (EU) 2022/2580.

  82. See Sect. 4.1 above.

  83. See Sect. 4.2 above.

  84. Arts. 8(11), first subparagraph, 9(11), first subparagraph and 10(11), first subparagraph DLT Pilot Regime Regulation.

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  1. General Counsel, Scalable GmbH, Berlin/Munich, Germany

    Heinrich Nemeczek

  2. LL.M., Harvard University, Cambridge, MA, USA

    Heinrich Nemeczek

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Nemeczek, H. Third-Country Regime and Equivalence: FinTechs. Eur Bus Org Law Rev 25, 145–165 (2024). https://doi.org/10.1007/s40804-024-00310-z

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