The Connector Podcast - DFS 2023 - Fintech Belgium - Simont Braun

Step into the future with us as we sit down with Philippe De Prez, a seasoned fintech lawyer at Simont Braun,  for an enlightening discussion on the forthcoming PSD3 regulations and their impact on open banking. From the potential disappearance of e-money institutions to the revolutionary reach of the Financial Information Data Access (FIDA) proposal, Philippe deftly navigates the intricate maze of European financial laws and paints an intriguing picture of the financial landscape to come.

As we delve deeper into the conversation, we uncover the myriad opportunities and challenges these new regulations present to the fintech sector. Through Philippe's insights, we unpack the potential simplicity of switching financial service providers ushered in by PSD3 and explore the implications of the recent Credit Directive on 'buy now pay later' providers. But we don't stop there. Philippe also shines a spotlight on what this could mean for the crypto industry, offering a fascinating look at the impending changes in the fintech world. Brace yourselves for a riveting journey into the heart of open banking and fintech!

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Koen Vanderhoydonk
koen.vanderhoydonk@jointheconnector.com

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Transcript

Introduction: 0:01

Welcome to the Connector podcast, an ongoing conversation connecting fintechs, banks and regulators worldwide. Join CEO and founder Koen van der Hoijdon as you learn more about the latest available trends and solutions in the markets.

Koen Vanderhoydonk: 0:21

Welcome to another podcast episodes, and today I'm here with a lawyer, philippe, who are you and who do you work for?

Philippe De Prez: 0:30

Thank you, koen. So I'm Philippe De Prez from Simon Braun. We're a Brussels based law firm. I'm a partner there and a fintech lawyer, and since 2014 I'm part of their digital finance team and we're doing all things legal, regulatory and fintech. So we're there for Belgian clients, but we also specialize in welcoming foreign entities wishing to set up their business or rolling out their services in Belgium or in Europe through Belgium. So passporting, passporting a lot of that, but also services that are not passportable and just under the local regime. So we do both. So a lot of regulator interaction, a lot of discussions with the regulator, looking sometimes for exemptions, advisory work in general when you know new products are coming on the market, when they're disruptive the regulator wants to know about it before it hits the market and also, yeah, the aftermath of audits, sometimes solving issues. All that type of work, basically.

Koen Vanderhoydonk: 1:37

So your shop is open for all these kind of questions, absolutely. So, talking about being open, I wanted to talk a bit about open banking, and a lot has been set around PSD2, but nowadays there is PSD3 coming up, so could you give us a little bit of insight? What is your view on that?

Philippe De Prez: 1:57

Sure. So PSD3 has made a lot of noise since the summer. The texts were released, the draft proposals were released by the commission at the end of June and since then there is a lot of talk about these texts. But basically this is just the beginning of a process. So the commission has now come up with a proposal and this fall the member states will start to discuss on the level of the EU council how they can find a compromise on these texts, and then only after that we're taking it to the parliament. So basically, we're looking for final text, level one, final text at the end of next year, more likely even the beginning of 2025 as a timeline, and the expectation is that a lot of what we have today in the proposals will change between now and the final text. And then we have also, as you know, in European regulation, a lot of level two regulations.

Philippe De Prez: 2:52

So the ABAA, the European Banking Authority, has received a very wide mandate to come up with guidance, regulatory technical standards, and when we will see the final text, level two, it will be probably 2027, 2028. So it's the beginning of a process, but a very interesting process because now is also the moment that FinTechs can in a way interact with that legislation, because the member states are discussing this and basically for the member states, the central banks, the supervisors are discussing or starting to discuss among themselves okay, how can we find a compromise? And in Belgium, the National Bank of Belgium is typically opening up to the sector and saying, okay, please give us your input directly, individual institutions, or also through industry organizations like FinTech Belgium, or also pay Belgium, channeling all that input so that the NBB can take that on board and use it in the negotiation. So it's early process but it's a very interesting timing for institutions that want to participate.

Koen Vanderhoydonk: 3:59

And can you already give us although maybe things will change, but can you already give us a tip of the iceberg what would be your top two things that are drastically changing in comparison to PSD2?

Philippe De Prez: 4:11

Well, in honesty, there isn't a lot of drastic change. If the question is is this a revolution like PSD2 was then our answer based on the current state of the text is definitely no.

Philippe De Prez: 4:25

It's more of an evolution. It's more of an implementations of the lessons learned under PSD2. One of the highlights is basically the disappearance of e-money institutions as a separate category of institutions. They will no longer exist, but it doesn't mean that e-money itself will disappear. So, as of the implementation of PSD3 and PSR, you will basically have payment institutions offering just payment services and then those also offering e-money.

Koen Vanderhoydonk: 4:59

Uh, so interesting, interesting. Yeah, you still talk about money. Um, psd two as such was somehow narrowed to to cash.

Philippe De Prez: 5:08

Yes.

Koen Vanderhoydonk: 5:09

So what? What's what's happening on all the others? Because the crown jewels in banking not only lie within cash, but also with investment, pension saving. Well, you name it. There's so many other things, yeah.

Philippe De Prez: 5:20

That is. That's uh that's a good remark. Basically, uh, psd two was the creation of open banking, and so there was a lot of, you know, a lot of celebration around that, but at the end of the day, if you look at the scope of open banking under PSD two, it's extremely narrow. It's just as you said. You know, it's it's data on payment accounts. It doesn't even include saving accounts. Not even all accounts are included in this, in this open banking.

Philippe De Prez: 5:44

And, uh, at the same day that the commission released the PSD three and PSR texts, it got a bit snowed under because everybody was, you know, talking about those texts, but the same day, they also released other proposals.

Philippe De Prez: 5:57

And, and what we find typically interesting in connection to your question is, is the the proposal on uh financial information data access. It's called FIDA and it's, in a nutshell, basically open banking for all types of financial information. So, beyond, you know, payment accounts, it includes savings, mortgages, credits, insurance, uh, pensions, crypto assets all of that information, uh, when you know when FIDA will will come live one day and, as it looks today, will be part of of of open banking. So all of that information will be shareable, and so financial institutions will both be data holders but also data users. And um, there will be a new category of uh of entities. Uh created the financial information data service providers and, a bit like you know, in under PSD two uh with the account information service providers. This new entity will be able to build a lot of services around all of this financial uh information.

Koen Vanderhoydonk: 7:03

Will that also be an obligation by the financial institutions to share all that data that you just mentioned?

Philippe De Prez: 7:09

Yes, so in the same way as under PSD two for the payment accounts, there is now also, of course, if the data subjects agree, so basically the clients of the financial consent, exactly consent.

Philippe De Prez: 7:21

It will be able, you know the the institutions will have to release that information. So, typically, you bought a house, you got a home insurance, uh, let's say. And so two years later you know you want to change insurer, but you know you already went to a very painful process of having an expert, you know, taking pictures, filling out forms and and basically two years later you will be able to just, you know, notify your old insurer saying can you please transfer all of that information to my new insurer so that he can already use that information? The same, the same would go for MIFID questionnaires. As an investment service provider, you can simply say okay, well, I already filled that out, I already gave all that information. They have history on me. Just please pass it on to my new or additional uh service service provider, where today those institutions have no, you know no incentive to to share that type of information, because a lot of clients will refrain from changing provider because they don't have to go through that type of process.

Koen Vanderhoydonk: 8:18

And, at the same time, there's no full harmonization either on that process at this moment, so this was probably also be pushed in the next coming, coming years. We always looking forward now maybe more mid-bore concrete. That has been the, the credit directive that has been adopted just recently with some interesting thoughts about uh, by now, pay later. Yeah, yeah, what's happening there, philippe?

Philippe De Prez: 8:45

Well, uh, for the moment nothing, but we expect that things will happen in in the coming 18 to 24 months. So we've all seen the rise of by now pay later providers heavily, yes, uh. So for, for those who are unfamiliar with with this concept, it's, it's. It's basically allowing uh acquisitions to be made of of good services, uh, through deferred payments, so you can pay something in two, three, uh, typically four times Um and um. From a regulatory perspective, uh, and that's also reason why they've grown so substantially over the last years this is a very light regime. So basically, they fall completely outside the consumer credit uh regulation, while in essence they are doing the same thing.

Philippe De Prez: 9:30

Yes, it's credit, it's called payment, but it's credit in disguise, and so this has been criticized a lot by regulators, but also by the larger public opinion, because it's targeting a segment of the population that is already sometimes suffering from indebtedness. And so, under this new and that's not a proposal that has been adopted, but it still needs to be implemented these by now pay later service providers will fully fall within the consumer credit regulation. So it needs, they need to be licensed and they need to follow conduct of business rules. The conduct of business rules it's typically they have the obligation to provide a lot of pre-contractual information to the clients.

Philippe De Prez: 10:14

They need to collect information, see whether this client is fit for credit or not, and they also need to interact with the credit register. All of that is not there today. It's basically a bit of a black zone in which those by now pay later service providers operate, and we do expect that this will lead to a lot of changes in the sector itself. Potentially, some of the smaller players won't be able to cope with this type of regulatory burden and we'll see some you know some providers pulling out of the European market in general, because a lot of them come from, you know, the US or Australia, and they might just decide to no longer be active on the European market. Or we will probably also see some consolidation and a few institutions, you know, putting things together and continue as such. So it's something that you know wouldn't say we're looking forward to it, but it's gonna change the market of by now pay later is significantly, for sure, depends which side of the coin you look at.

Koen Vanderhoydonk: 11:16

Right, if you look at the vulnerable people, then it also makes sense. Well, you're talking about almost like not something we look forward to, but at the same time, one of the topics of DFS is about regulations and regulations being an opportunity. What is your thought on that?

Philippe De Prez: 11:38

Yeah, I definitely think that regulation can be an opportunity and in Europe we don't have much of a choice. I mean, we have to see it as an opportunity because the cliche goes that you know, in Europe we excel when it comes to regulation and we regulate first and then we do business afterwards, unlike the US or Asia. So I think we should see it as regulation. For certain types of regulation, it's very difficult to identify the opportunity as a service provider.

Philippe De Prez: 12:07

I'm making a jump now to the crypto industry, where we've seen recently beginning of this year in Belgium, Mika is coming up, but there you can still, you know, identify an opportunity in a way that it will, you know, come to a single license and you get your license in one member state. You can passport it out. But what we've seen in Belgium, for example, with the marketing rules, where Belgium, as one of the only jurisdictions in the world, is now imposing the use of very aggressive disclaimers like saying that the only guarantee in crypto is risk.

Philippe De Prez: 12:39

That is something that needs to be published on all of the platforms when you focus or when you solicit Belgian consumers, but followed by a very long list of warnings of everything that potentially could go wrong when investing in crypto.

Philippe De Prez: 12:56

I can imagine that for a crypto service provider, it's very hard to see. You know the upside of that type of regulation, even though you know it's again about certainly about justified consumer protection. But you know what we just discussed about FIDA the Financial Information Data Access Regulation Proposal. There it's clear that there is potential upside because we will be dealing with a unique framework in Europe where financial institutions are forced to open up to share data where you know normally they wouldn't have a real incentive to do that, and it's a unique situation. We don't see that in any other jurisdiction or geographical zone. Not at that extent, right? No, definitely not to that extent. And so this is, for me, definitely something where you know smart, agile fintechs can buy, can build sorry a lot of additional and interesting services. So there it's for sure an opportunity.

Koen Vanderhoydonk: 13:56

Cool. Well, thank you very much for sharing, and the time flies when you're having fun. So we are already at the end of our podcast. Maybe one more last question when can people find you, apart from being at DFS, obviously?

Philippe De Prez: 14:13

Obviously, we'll be there with the whole team, so come see us. Very easy, you can connect on LinkedIn or you go to our website, simonbroneu, and you can find all our information there, perfect Philippe, many thanks for joining.

Koen Vanderhoydonk: 14:27

Thank you also to the audience and stay tuned for more interesting news from fintech Belgium.

Introduction: 14:34

Thank you very much, thank you Thanks for listening to another episode of the Connector podcast. To connect and keep up to date with all the latest, head over to wwwjointheconectorcom or hit subscribe via your podcast streaming platform.