Intervenção de José Miguel Almeida, Administrador da CMVM, na Conferência "Fintech Regulation and the Licensing Principle"

Conference - Fintech Regulation and the Licensing Principle

Faculdade de Direito da Universidade de Lisboa

30 June 2022


José Miguel Almeida

CMVM Management Board


Dear Fellow Panel Members,

Dear Participants,

Ladies and Gentlemen,


My first words are to thank the Centro de Investigação de Direito Privado and the European Banking Institute for hosting such an enriching event. It was with great pleasure that I accepted the invitation to briefly share with you the CMVM's approach to FinTechs.

Before I get on to that topic, I would like to say a few words about one of the main topics of this conference, the licensing principle. This principle is one of the very foundations on which market economies have prospered for almost a century. First, confidence in the financial system requires public awareness that financial entities can only operate if they are licensed to do so, which also contributes to the enforcement of good practice. Second, the licensing principle is paramount in ensuring the ability of our financial architecture to deal with systemic risks and ensure fair competition among market participants.

Therefore, it is important that the licensing principle is restated and strengthened, to ensure high-priority goals as investor protection and market integrity, and also to ensure that end users enjoy the full potential benefit of responsible innovation, especially in these times of constant change.

And change is undoubtedly here to stay. Currently, it is easy to realise the transformative potential that new technologies have across all sectors of the financial system. The market of crypto-assets, for example, is representative of the disruption that new technologies are bringing to the financial sector.

In 2021 alone, the capitalisation of this type of assets more than doubled, from circa 770 billion euros to circa 2 trillion euros.  Five years ago, at the beginning of 2017, they represented only 17 billion. Specifically in Portugal, data from the Statista Global Country Survey, estimate that in 2020, circa 8.1% of Portuguese people used or held crypto-assets. Today, given the growth of this phenomenon, the use certainly is higher.

And the change is not only on the crypto-assets front. The increase in the use of artificial intelligence tools in the financial sector is also mounting. There are several potential applications, from algorithmic trading and optimisation of investment strategies, risk calculation and credit rating, to settlement and payment processing, to name but a few in the financial sector. For instance, data from the European Financial Supervisory Authorities show that the volume of assets managed automatically or semi-automatically by robo-advisors grew between 2017 and 2021 from circa 10 billion euros to circa 90 billion.

Additionally, the transition to a green, more sustainable, and resilient economy is both a national and a European priority. The current climate emergency claims for strong leadership in political, but also technical and regulatory dimensions. In this sense, increasing relevance of social factors and good corporate governance is anticipated, also in the field of financial regulation.

Against this background and considering the potential for transformation in our economies through the development of new products and services for investors, the CMVM monitors new technologies and seeks to adopt a positive attitude towards financial innovation. By taking a proactive, critical and constructive role in promoting financial innovation and best practice, the CMVM seeks to monitor trends, mitigate risks and contribute to an efficient and sustainable digital economy and markets.

In this context, I would like to highlight the launch of "CMVM inov", which took place last month, when the CMVM celebrated its 31st anniversary. This initiative is a key activity of our strategy.

It seeks to foster closer proximity with all stakeholders and provide better service to the community, aiming to facilitate dialogue with entrepreneurs within the scope of the CMVM's responsibilities, while clarifying the regulatory framework for new projects and initiatives. Additionally, for the CMVM, this initiative aims to be a forum for sharing knowledge, namely through the development of initiatives and publications on financial innovation.

Considering the trends that I referred at the beginning of my speech, the "CMVM inov" is structured in three main areas of activity: Distributed Ledger Technology and Blockchain; Artificial Intelligence; and ESG Innovation. Let me now share with you some additional thoughts on each one of these three dimensions.

Regarding distributed ledger technologies and blockchain, they are likely to lead to a breakthrough that fundamentally can change the way information or assets are traded, validated, held and shared, or accessed.

Their development may become an essential component of capital markets, potentially redesigning the way market operators conduct their business, fostering simplification and operational efficiency. On the other side, the impacts of these technologies must also be seen as an opportunity for financial inclusion and promotion of digital and financial literacy.

Notwithstanding, there are risks for investors that must be tackled urgently through common and coordinated action. As recently cautioned by the European Financial Supervisory Authorities, investors in crypto-assets face the real possibility of losing all their invested money, due to the high-volatility of crypto-assets, misleading advertising, and fraud. These is even more important because, for the time being, there are no safety nets like those the investors are used to in the regulated markets.

As this is a largely unregulated reality, except for crypto-assets qualified as financial instruments, we at the CMVM are particularly attentive and have contributed actively to European legislative initiatives that aim to regulate this new reality in the EU.

This month, the European Regulation on a pilot regime for market infrastructures based on distributed ledger technology was published in the Official Journal of the European Union. This Regulation introduces an experimental, optional and temporary regime that aims to allow for the development of crypto-assets that qualify as financial instruments and for the use of distributed ledger technology in the capital markets, while maintaining a high level of investor protection, market integrity, financial stability and transparency, avoiding regulatory arbitrage and loopholes.

Also, this year, the proposed regulation on market in crypto-assets (known as MiCA) will be approved. This proposal provides a sound legal framework for crypto-asset markets to develop within the EU. It defines the regulatory framework for crypto-assets that are not covered by existing financial services legislation.

On the other hand, an increasingly decentralised financial system ("Decentralised Finance" or DeFi) is also emerging. It is an ecosystem of decentralised applications that provide financial services built on peer-to-peer and trustless networks that will continue to defy existing legislation. 

In this context of legal uncertainty, the CMVM works to support innovators and investors, in the context of National and European rules. We aim to clarify and foster the development of projects that improve the functioning of our economies and the products available to investors.

Moving on to another dimension - Artificial Intelligence (AI).

It is undeniable that disruptive impacts are already felt in the financial sector, enabling not only new products and services to be offered to investors, but also efficiency-gains for companies.

 Among the potential advantages for investors of these types of solutions are cheaper products tailored to individual preferences and better consumer experiences, for example, through the segmentation of information or robot customer service. For companies, artificial intelligence allows, for example, to reduce operational and management costs, optimise risk control, and to innovate in the development of products and services.

However, along with those potential benefits, there are also risks in the use of artificial intelligence, especially if decisions are based on poor quality data, lack of transparency, lack of control, and cybersecurity.

This month the CMVM published a document for reflection and consultation on the potential impacts and applications of Artificial Intelligence (AI) in the financial sector.

This document aims to identify current or future AI tools in different areas under the CMVM's supervision, to foster the responsible use of AI in the Portuguese capital markets and to reflect on the main developments in this field, by considering contributions from all stakeholders that are potentially impacted by the use of AI.

To this end, the CMVM is asking for contributions from all stakeholders, through a questionnaire available in CMVM's website. Contributions to this reflection may be submitted to us by 31 July 2022.

The contributions will allow CMVM to further deepen the reflection presented in the document, notably by including different perspectives, as well as identifying other situations, trends or concrete data that will enable a better and broader understanding of the national status with a view to foster the development of AI. In the coming days, a webinar will be held by CMVM to further explain this initiative.

Lastly, I would like to further stress the important role of ESG Innovation. The concept encompasses financial products and services that are innovative, technology-driven and that explicitly incorporate environmental, social and/or corporate governance elements in their features.

In fact, the use of emerging technologies (such as artificial intelligence, big data, blockchain or the internet of things) can steer the market and investors towards more sustainable financial products and services and help all participants in financial markets to reduce externalities on the environment and society.

At the CMVM we adopt a pragmatic and constructive attitude towards supervised entities in their compliance efforts to meet the requirements to provide ESG information to the market and investors and in combating greenwashing. For example, the CMVM published last March a Supervisory Report on Sustainability Factors in Listed Issuers.

In view of these developments, at the CMVM we are open to innovative approaches that enable the offer of new services and products to investors, while enabling companies to reduce their operating costs, provided that the stability and integrity of the markets and the maintenance of high standards of investor protection are ensured. To this end, a barrier to entry the market is needed and therefore the licensing principle is a key concept for the CMVM, also in its approach to the FinTech sector.

And now before closing my speech, a final word on the increasing need for an enhanced coordination among financial supervisory authorities.  In fact, digitalisation has fostered a growing interconnection between the capital markets, banking and insurance sectors. Given the proliferation of borderline issues, cooperation between companies and the regulators of the three financial sub-sectors (CMVM, Banco de Portugal and ASF) becomes more important than ever.

In this respect, I stress the importance of Portugal FinLab, currently in its 4th edition. This initiative that was launched in 2018, develops as a communication platform between innovators in the financial sector - start-ups or incumbent institutions - and the 3 Portuguese financial supervisory authorities. Through this platform, the authorities convey to participants the framework to operate within the Portuguese regulatory framework. This initiative aims to create an environment that is more conducive to the development of FinTech businesses and projects, thus responding to the sector's global growth trend.

I end by wishing you a good conference and once again congratulating the Centro de Investigação de Direito Privado and the European Banking Institute for this excellent initiative.

Thank you very much!