Innovation and regulation: opportunities and obstacles

In our report entitled ‘Innovation and regulation: opportunities and obstacles', we present key findings and further action points from an exploratory study into obstacles and potential improvements of the statutory supervisory framework related to innovation. We took this initiative jointly with sector associations, individual financial institutions such as banks, insurance firms, payment institutions and electronic money institutions, and peer supervisors.

You can download the report below.

Innovation and regulation

Central to the exploratory study is the question what requirements the statutory supervisory framework must meet in order to continue to guarantee the objectives of financial supervision, and at the same time allow sufficient scope for innovation in the market. The report presents analyses and recommendations on such topics as the balance between entity-based and activity-based regulation, supervision of ecosystems, European harmonisation of the statutory supervisory framework and supervisory practices, proportionality and efficiency of regulation and supervision, and scope for experiments in the market.

The importance of European harmonisation

In one of the report's recommendations, we argue for closer harmonisation of the statutory supervisory framework and supervisory practices in Europe, especially where financial services are readily made available across borders in digital form, for example by BigTech firms, and where Member States have the discretion to pursue their own policies. The Dutch Ministry of Finance has stated, in its FinTech Action Plan, that it is committed to harmonisation of regulation and supervision of financial services. Through regular roundtables, it wishes to exchange views with relevant stakeholders. A further recommendation in our report stresses the need for closer cooperation between supervisory authorities with mandates in the areas of cybersecurity, data protection, competition and financial supervision (see also our report ‘Changing landscape, changing supervision’).

A closer look at our Regulatory Sandbox

The exploratory study showed that financial institutions would value having more room to experiment. This is why we will take a closer look, in collaboration with the AFM and market parties, at the Regulatory Sandbox, which was set up in 2016. This facility offers tailor-made advice to both new market entrants and incumbents where applying legislation or policies would create undue obstacles to innovation. In our iForum platform, we will examine the possibilities to improve the effective operation of the Regulatory Sandbox within the existing regulatory framework. Researching similar sandboxes in Europe and beyond and assessing whether any resulting successful initiatives elsewhere would have faced obstacles in the Netherlands will enable us to identify more specifically the adjustments that may be expedient and required. Based on use cases put forward by market participants, we will consider how the Regulatory Sandbox might be improved. If you are interested in participating in this iForum research project, please contact us by email at iforum@dnb.nl.