Innovating in the digital space is critical to competitive advantage, and digital finance is transforming our economy and society. Digital technology is no longer just a support function, but a core competence. Businesses are also accessing each other's systems directly (using 'application programming interfaces' (APIs)). New apps are built quickly to use the available data. This means new revenues, but also new risks and vulnerabilities. The European Commission has therefore announced it will support innovation in this area in four ways over the next four years, along side its retail payments strategy.

The EU sees four opportunities for the trade bloc:

1. Reduce fragmentation: to help consumers access more services at lower prices while enabling finance firms to scale cost effectively. This means ensuring anti-money laundering regulation supports harmonised customer onboarding; a review of e-identity assurance (e-IDAS) to support interoperable cross-border digital identities; extensions to services that can be passported; and EU-wide regulatory 'sandboxes' to test new services safely.

2. Better regulation: a faster, more open and collaborative approach to developing financial services regulation and supervisory practices for cryptoassets (digital ledger technology or 'DLT') and artificial intelligence (AI). This means clarifying the application of existing rules (security tokens); new rules for markets for cryptoassets; and adding a new EU legal framework for crypto-assets not yet covered (utility tokens and stablecoins); oversight of critical third-party outsource service providers to the financial sector (e.g. cloud services); and developing regulatory and supervisory guidance on the use of AI applications in finance.

3. Enhanced data sharing: to facilitate real-time access to all publicly available disclosure relevant to capital markets in machine-readable format; promoting digital innovation in regulatory reporting ('RegTech') and supervision ('SupTech'); and a wider 'open finance' framework in line with the EU Data Strategy, under the upcoming Data Act, and Digital Services Act, coordinated with the review of the Payment Services Directive and E-money Directives in 2021.

4. Removing artificial regulatory distinctions between new and existing services and activities, based on the principle of “same activity, same risk, same rules” - both within the same firm and to ensure a 'level playing field' between existing firms and new entrants.

The European Commission will also continue to work with Member States in the development of their existing local initiatives to ensure a harmonised approach to digital finance.