BELGIUM: An Introduction to FinTech Legal
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FinTech in Belgium
General Introduction & Market Overview
Belgium has always been a frontrunner when it comes to financial services and technology, even before it was called “FinTech”. Critical market infrastructure players such as Swift and Euroclear are based in Brussels and have been providing services to financial institutions worldwide for many years.
The FinTech hype got a boost around 2013/2014 with developments mainly in the field of alternative financing (crowdfunding, peer-to-peer lending, etc), rapidly followed by significant evolutions in the payments sector powered through the regulatory innovation brought by PSD2. Popular payment solutions offered by FinTech companies in Belgium concern retail payment, but an important part of the market is working on B2B payment services such as professional FX payments and payment solutions for small and medium-sized enterprises (SMEs). As a result of Brexit, very high-profile UK payment service providers, the likes of MoneyGram, Wise, Ebury and Worldremit, selected Brussels as their output to continue serving the continent. The arrival of these players has added a lot of maturity to this sector in Belgium.
Next to alternative financing solutions and payment platforms, we also see in Belgium several automated investments solutions (robo-advisers) and an important number of infrastructure and enabling technology service providers offering RegTech, data and accounting solutions. Although Belgium counts a few local champions developing well internationally, blockchain and crypto initiatives/ICOs remain rarer phenomena in the Belgian market.
A recent trend is clearly the rise of Belgium-based challenger banks (both start-ups and projects launched by incumbent players). Another recent trend, along with the Covid-19 crisis, is the growing popularity of By Now Pay Later (BNPL) solutions which are in essence unregulated consumer credits without interest and with no to only very little costs. As elsewhere in the world, these straightforward solutions offer consumers access to products and services in one or more short-term instalments. It should be watched how a proposed revision of the EU Consumer Credit Directive will affect these unregulated business models.
Outside the Brexit context, Brussels has become an attractive choice for foreign FinTech companies from the Americas, Asia and even other European countries to set up their European headquarters, apply for a licence, and try to conquer the European continent with their products and services from Belgium. This shows that the current growth in the Belgian FinTech sector is not based on political circumstances (like Brexit) or mere coincidences, but is rather the result of a steady, sustainable and attractive local ecosystem.
The relation between FinTech companies and incumbents has evolved over the years from a denial of their existence by the traditional banks, over a phase of mistrust and competition, to today’s situation where a lot of collaboration is happening. Now, banks and other traditional financial groups are heavily investing in FinTech start-ups, but are also becoming their best clients as more and more FinTechs are focusing on B2B services given the client acquisition cost that comes with serving consumers directly.
In early 2016, the non-profit organisation “FinTech Belgium” was launched to represent and bring together all FinTech companies established in or linked to Belgium. Through numerous specific events and general summits, this association has gathered the FinTech sector and facilitated several collaborations in the field.
In 2020, another non-profit organisation, PayBelgium, was created to represent the Belgian payments industry and its interests to policymakers. They focus on developing common policy positions and engaging with the regulators to defend the industry’s interests. Also, the traditional banking sector with support from the Government has launched ecosystem initiatives in the past, and both Febelfin (the Belgian Financial Sector Federation) and EBF (the European Banking Federation) are actively involved in structuring the FinTech ecosystem.
Belgian financial (and connected) regulation is mainly based on European directives. Most of the time, a maximum harmonisation approach is taken by the Belgian legislator, avoiding gold-plating practices. Therefore, most of the key financial pieces of legislation (PSD2, parts of MiFID2, Banking Directive, eIDAS, etc) which matter to FinTech initiatives are very similar (if not identical) to the legislation applied in other European jurisdictions. The notable exception is the AML legal framework, as it derives from a minimum harmonisation directive (leaving the Member States more room to adopt specific rules). Therefore, differences can exist from one Member State to another. From a licensing perspective, through the system of mutual recognition/EU licence passporting, financial services licences obtained in Belgium can be easily passported to other EU countries without the need to apply each time for a new local licence in targeted markets.
When certain subsectors remain overlooked by the European legislator, the Belgian authorities try to put in place dedicated pieces of legislation until appropriate action is taken at the EU level. This was notably the case for crowdfunding. This practice remained unregulated at both the European and Belgian levels until 2016, which caused legal uncertainty as to the status of existing crowdfunding platforms. The Belgian Alternative Finance Platform legislation put in place a dedicated legal status, leading to growth in this area of FinTech.
In the financial services industry at large, three regulators are relevant for FinTech companies in Belgium:
The National Bank of Belgium (NBB) is the competent supervisor when it comes to the prudential regime applicable to credit institutions (banks), insurance undertakings, e-money institutions, payment institutions and large stockbroker companies (next to more general central bank macroeconomic responsibilities). Due to the nature of its competences (o.a. payment services and (challenger) banking), the NBB is the regulator that is very often confronted with FinTech initiatives. It has put in place dedicated teams dealing separately with each type of licence. Generally speaking, the NBB is pragmatic, open to innovation and tech-savvy, with high-quality supervision.
The Financial Services and Markets Authority (FSMA) is the competent supervisor when it comes to the prudential regime applicable to smaller investment firms, regulated credit providers, crowdfunding platforms, and intermediaries in banking services, investment services and insurance. The FSMA is also in charge of the oversight on the rules of conduct applicable to insurance and investment services, next to more general authority over public offers, listed companies and the financial markets. Although still unregulated at this stage, it is also the FSMA (in its role of supervisor of financial markets and information) which closely follows evolutions on crypto-currencies and ICOs, mostly by issuing warnings on the dangers associated with these types of assets and investment structures. The FSMA also follows up on local initiatives in this field, making sure that these practices do not fall within the scope of existing regulations (such as public offerings).
The FSMA and the NBB have set up a joint ‘FinTech portal’ to point FinTech companies to the right regulator in accordance with their (contemplated) activity.
The Federal Public Service Economy (FPS Economy) has very specific powers over the rules of conduct applicable to regulated credits and payment services.
FinTech companies from around the globe are attracted by the Belgian professional and tech-savvy regulators who are accepting licence applications and supervisory interactions in English, the central location of Belgium in Europe, a highly skilled and multilingual workforce, the presence of key EU institutions, and the fact that Belgium, being at the crossroads of different cultures and benefiting from a very cosmopolitan population, is an interesting test market for their new products and services.
We expect further significant developments in the market in 2021-2022, mostly in the payments, BNPL, crypto and challenger banking field, driven by foreign investments.