One year of simplification – What is the impact on European FinTech?

The Draghi Report and current Omnibus Proposals

In August last year, Mario Draghi published The future of European competitiveness, his report on how Europe is lagging behind the US and China. The report stresses the need for reforms, noting the fragmented single market and heavy compliance load which affects SME:s (companies with fewer than 250 employees and a turnover of no more than EUR 50 million or a balance sheet of EUR 43 million) and SMCs (companies with fewer than 750 employees and a balance sheet of no more than EUR 129 million or a turnover of EUR 150 million). Many FinTechs, and in particular startups and scaleups, fall within one of these categories, and are additionally subject to financial regulations, creating an even heavier compliance load.

The report has sparked an interest in rules simplification, and the Commission elected in 2024 has made competitiveness one of its main priorities. So far, the Commission has presented seven so-called omnibus proposals, covering areas ranging from sustainability reporting to defense readiness. The proposals generally aim to increase the proportionality of regulatory requirements, limiting some requirements to companies which are not SMEs or SMCs.

The Omnibus proposals have not included specific proposals related to EU financial market regulations, but nevertheless affect FinTechs, as many startups and scaleups in the FinTech sector are among the SMEs and SMCs who are affected. The major proposals impacting such FinTechs include simplified rules on sustainability reporting under CSRD[1] and CSDDD[2], and derogations from GDPR[3] record-keeping obligations. The sustainability reporting requirements in Omnibus I would exclude SMEs and SMCs from mandatory reporting requirements, and would postpone the roll-out of CSRD requirements and CSDDD transposition. The GDPR amendments proposed in Omnibus IV exempts undertakings with fewer than 750 employees from maintaining a record of data processing activities, unless such processing is likely to result in a high risk to data subjects.

The digital omnibus package, which was published on 19 November, contains further simplification proposals, including clarifying personal data and pseudonymisation. The proposal would create a single-entry point for reporting under NIS2, DORA, eIDAS and GDPR reporting, simplifying the reporting of financial entities covered by DORA and NIS2.

The above-mentioned proposals aim to generally decrease the regulatory burden for SMEs and SMCs, and are generally not specific to FinTech companies. However, the EU’s far-reaching financial regulations have also become subject to simplification. On 4 December, the Commission published a proposal on reforms to decrease and simplify regulatory requirements for financial entities and to create deeper and more integrated financial markets within the EU, increasing the amount of capital being made available to European companies and decreasing the number of European companies relocating to the US.

The proposal includes amendments to various financial regulations, including financial markets rules in MiFID[4] and MiFIR[5], the AIFMD[6] and UCITS[7] directives, and the crypto-asset regulation MiCAR[8]. Rules on trading venues are harmonised and moves from MiFID to MiFIR, increasing cross-border consistency. The financial markets regulations are further amended to increase group-level resource sharing and synergies amongst asset management groups, by specifying that such resource sharing shall not be considered outsourcing. For crypto-asset service providers, the proposed amendments to MiCAR ensure that CASPs may provide services throughout the EU without having a physical presence in a host member state. For AIFMs, ESMA is given the task of developing guidelines to ensure uniform application of prudential rules, and transmission periods between host and home member state authorities are shortened.

The proposed reforms would also centralise supervision of more financial entities – including crypto-asset service providers – to ESMA (with national licenses remaining valid during the transfer). Cross-border stock exchanges, clearinghouses and central securities depositories would also be supervised by the Paris-based agency.

Conclusions

The existing omnibus proposals and financial market rules reforms would be expected to decrease the compliance load for European and Swedish FinTechs, especially those who are SMEs or SMCs. Those entities would be able to focus more on product and upscaling, and less on complying with various EU regulations.

However, there are still many obstacles to rules simplification in practice. The existing omnibus proposals are subject to debate both in the European Parliament and among member states, with more than 1,000 amendments proposed just to the Omnibus I proposal in Parliament, and the risk of national ‘gold-plating’ creating a non-uniform regulatory environment remains.

It is far from certain what the final amendments to EU regulations will look like. Yet, if the proposals were to enter into force in their current form, small and medium-sized FinTechs would not only be able to redirect resources from compliance to product development, but a lower regulatory burden and centralized supervision could potentially also favour expansion into other European jurisdictions for some FinTechs. The current simplification proposals are also likely not the endpoint of EU regulations but could signal a fundamental shift towards proportionality and decreased compliance loads for European companies.

[1] Directive (EU) 2022/2464 of the European Parliament and of the Council of 14 December 2022 amending Regulation (EU) No 537/2014, Directive 2004/109/EC, Directive 2006/43/EC and Directive 2013/34/EU, as regards corporate sustainability reporting.

[2] Directive (EU) 2024/1760 of the European Parliament and of the Council of 13 June 2024 on corporate sustainability due diligence and amending Directive (EU) 2019/1937 and Regulation (EU) 2023/2859.

[3] Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC.

[4] Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (recast).

[5] Regulation (EU) No 600/2014 of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Regulation (EU) No 648/2012.

[6] Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010.

[7] Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) (recast).

[8] Regulation (EU) 2023/1114 of the European Parliament and of the Council of 31 May 2023 on markets in crypto-assets, and amending Regulations (EU) No 1093/2010 and (EU) No 1095/2010 and Directives 2013/36/EU and (EU) 2019/1937.