The European Securities and Markets Authority (ESMA) is the regulator of the EU’s security markets. ESMA published a report on the 12th July, 2019 expounding on the status of licensing regimes of fintech firms within the EU. ESMA’s report was based on two surveys conducted since January 2018 by the national competent authorities (NCA’s).

The Surveys

The first survey aimed to identify the potential gaps and issues within the EU regulatory framework. It evaluated how the national regimes diverge from such framework. On the other hand, the second survey attempted to identify the manner in which NCAs implement the concepts of ‘proportionality and flexibility’ when licensing Fintech firms.

The surveys confirmed that NCAs do not typically distinguish between FinTech and traditional business models when authorising and licensing their activities. This is mainly because regulatory authorities license a financial activity rather than the technology itself.


NCAs called for more coherence on the definition of ‘financial instruments’ and the legal nature of crypto-assets. This is in fact the primary area where regulatory gaps and issues were identified. NCAs opine that the regulatory treatment should differ depending on the nature of tokens. Tokens that are financial instruments should be subject to the full regulation. However, there also exist those tokens that are not considered as financial instruments. These should be subject to a minimal level of regulation.

The report identified the need for greater clarity on the governance and risk management processes – specifically those associated with both cyber security and cloud outsourcing. In ESMA’s opinion, many of the issues brought up during the survey are addressed in the ‘Joint European Supervisory Authority Advice’.

Innovation Facilitators

Innovation facilitators are typically established in the form of innovation hubs and regulatory sandboxes.

A direct link and an interdependence was found to exist between innovation facilitators and the approach of authorities in relation to Innovative FinTech business models. Innovation facilitators indirectly assist with identifying areas where legislation and licensing requirements need to be modified. They support Fintech firms understand the regulatory and supervisory expectations. At the same time, innovation facilitators enhance the knowledge of competent authorities about risks and opportunities.

Since innovation facilitators may diverge from jurisdiction to jurisdiction, ESMA published a report jointly with EBA and EIOPA. This was called ‘Report on Fintech: Regulatory Sandboxes and Innovation Hubs’ and it seeks to encourage further regulatory convergence in the sector.

A Holistic Crowdfunding Regime

The need for an EU-wide holistic crowdfunding regime remains an ongoing discussion, especially in relation to crowdfunding based on non-MiFID II instruments. The European Parliament and the Council is overseeing the regulation of crowdfunding service providers. They are expected to allow for a more level playing field with regards to cross-border service providers.

Report’s outcomes

One of the main 5 action points of the European Commission Fintech plan was also addressed. Specifically, the objective to ‘map current authorising and licensing approaches for innovative Fintech business models in Europe’.

Based on the evidence gathered, presently most innovative business models can operate within the existing EU rules. For this reason ESMA did not recommend that any changes be made in EU regulation at this stage. It does however continue to promote supervisory convergence on crypto assets, DLT, cyber security and innovation facilitators across Member States.

Legal Associate

Sara Leka

Sara joined E&S Group in 2018 as a legal associate within the Legal Department. She completed her Bachelor Degree at the University of Tirana, Faculty of Law in Albania and furthered her studies by completing a Master of Science in Civil Law at the University of Tirana. She is certified as a lawyer by the National Chamber of Advocacy of Albania. Prior to joining E&S Group, she has been working as a legal associate for two years with international companies. Her main areas of practice are fintech-related matters, corporate and commercial law and intellectual property matters.

Sara is fluent in English, Albanian and has a basic knowledge of Italian.


Phone:+356 2010 3020


Leave a Reply