For good reason, regulations are often regarded as business inhibitors and innovation killers. Because there is growing pressure to be compliant and avoid negative reputational and legal impacts, whenever a new regulation enters into force, it becomes priority. Budget is often made available by shifting it from other initiatives and projects.
The last 10 years have seen a piling on of new rules, and it’s evident that financial firms have had to slow down innovation to keep up with regulatory burdens. Today, though, we are observing a new phenomenon—regulations enforcing innovation through a top-down approach.
Here are three European regulations that exemplify this change:
The regulation on electronic identification and trust services for electronic transactions (e-IDAS) controls e-signatures across EU. It entered into force in 2016 and some requirements will become applicable by October 2018, including cross-border recognition of e-IDs. Its goal is standardizing and enabling the widespread use of electronic signatures. E-IDAS creates a clear, unique, and common legal framework around the use of electronic signatures, allowing financial institutions to adopt this technology and offer more digital benefits.
The General Data Protection Rule (GDPR), scheduled to go live in May 2018, reinforces and normalizes data protection for individuals within the EU. It gives citizens control of their personal data by asking their explicit consent for personal data treatment. GDPR offers the financial services industry the opportunity to rationalize and minimize data by cleaning it up and organizing it according to purpose. It also allows forward-thinking businesses the chance to engage and empower their customer, which in turn helps to reshape the relationship between the two.
2nd Payment Service Directive (PSD2) will become official in October 2018 and aims to strengthen efficiency and security in order to bolster consumer protection. This will open the market to new and emerging payment service providers by regulating them for the first time. Direct access to bank details (with client permission) will be possible, which will promote innovation and competition in the payment space and make room for open banking models based on APIs. Additionally, it sets the groundwork for new cross-selling opportunities, since new providers (not just banks) can merge account information in one place and acquire insightful customer data.
While e-IDAS, GDPR, and PSD2 offer three diverse ways to drive innovation, all of them make it evident how crucial regulatory bodies have become for fostering change.