Holland Fintech is presenting a monthly series of informational articles - Navigating The Fintech World - about the ever-changing world of fintech, delving deeper into a new topic each month! This month, read about how RegTech and LegTech are being redefined within the fintech sphere!

The Dutch Tech Scene

The Netherlands, particularly Amsterdam and Eindhoven, continues to thrive as a global tech hub, attracting fintech companies post-Brexit. The nation boasts Europe’s largest fintech event, Money 20/20 Europe, and holds the fifth position on the Global Innovation Index 2022. Eindhoven, a promising global science hub, hosts significant tech companies like Philips and ASML. The Dutch government actively supports fintech growth, focusing on improving the business climate and incentivizing startups.

In the financial realm, Euronext Amsterdam has surpassed the London Stock Exchange, underlining the Netherlands’ prominence. Traditional fintech, including payments and asset management, remains robust. Adyen, a Dutch payments platform, has evolved into a comprehensive financial technology platform. Next-generation fintechs, especially in blockchain, robo-advisory, and algorithmic trading, are emerging. The Netherlands leads in cashless payments within the Eurozone, with the Dutch Central Bank exploring digital euro and central bank digital currency (CBDC) possibilities.

Regulatory Landscape and Initiatives

Recent regulatory developments, particularly in 2023, highlight the European Commission’s initiatives for a digital future. Notably, the Markets in Crypto-assets Regulation (MiCA) came into force on June 29, 2023, establishing a comprehensive regulatory framework for crypto-assets. Additionally, the Digital Operational Resilience Act (DORA) introduces requirements for financial institutions to enhance their information and communication technologies’ resilience.

Other impactful legislative initiatives include a major Anti-Money Laundering (AML) framework overhaul, Financial Data Access (FiDA) framework, third Markets in Financial Instruments Directive (MiFID III), and third Payment Service Directive (PSD3). PSD3 takes center stage, emphasizing the evolving landscape of payment services in the EU.

2. Fintech Offering in Netherlands

Continued Innovation

The Netherlands sustains its position at the forefront of fintech innovation. Traditionally strong in payments, the Dutch fintech industry embraces trends such as SME financing, decentralized finance (DeFi), artificial intelligence (AI), and open banking. The implementation of PSD2 and the ongoing progress towards Open Finance at the EU level shape the data access landscape for consumers and SMEs.

Decentralized finance (DeFi) projects are on the rise, though challenges in achieving full compliance persist. AI plays a crucial role in improving customer experiences and operational efficiency across various fintech sectors, with ongoing discussions at the EU level regarding the AI Act. Open banking gains traction, and the EU DLT Pilot Regime provides a sandbox for distributed ledger technology-based market infrastructures.

Compliance and Backoffice Solutions

As AML/CFT requirements tighten, fintechs increasingly turn to external service providers for compliance. Backoffice solutions, often unseen but crucial, are provided by fintechs like Ophen, a cloud-based core-banking engine.

3. Regulatory and Insurance Technology

RegTech

Regulatory technology (RegTech) solutions gain prominence as the regulatory burden on the financial sector increases. Fintechs, like Fourthline, offer innovative RegTech solutions to ensure compliance with AML/CFT rules. Legal battles, such as Bunq’s victory against the regulator DNB, highlight the industry’s evolving dynamics.

InsurTech

The insurance sector in the Netherlands embraces data analytics and AI applications, with regulatory bodies monitoring developments closely. Initiatives by DNB and AFM ensure alignment with European standards, emphasizing the need for responsible AI applications.

4. Regulatory Bodies

The Netherlands follows a “twin peaks model” for financial supervision, with the AFM focusing on conduct-of-business supervision, and DNB on prudential supervision. Other supervisory authorities, such as the Dutch Data Protection Authority (AP) and the Authority for Consumers & Markets (ACM), oversee GDPR compliance and various aspects of the fintech industry.

5. Key Regulations and Regulatory Approaches

Netherlands adheres to a technology-neutral legislative approach, implementing EU directives and agreements. The Dutch Financial Services Act (FSA) forms the core regulation, aligning with EU directives like MiFID II, PSD2, Solvency II, and CRDV. Regulatory authorities, including the AFM and DNB, adopt both formal and informal approaches to address fintech developments, showcasing adaptability.

6. Restrictions

The highly regulated financial sector in the Netherlands requires many fintechs to obtain licenses or registrations. GDPR compliance is crucial for fintechs dealing with large sets of personal data, and recent fines on crypto giants Binance and Coinbase illustrate the Dutch supervisory authorities’ watchful eye.

7. Cross-Border Business

EU passporting enables Dutch regulated financial undertakings, including fintechs, to provide services throughout the EU. The Amsterdam fintech ecosystem’s growth post-Brexit fosters collaboration with European counterparts, creating a close-knit network of European fintechs.

In conclusion, the Netherlands continues to be a vibrant fintech hub, navigating evolving regulatory landscapes, embracing technological advancements, and fostering international collaborations.