The digital future of the spanish financial sector

The digital transformation has ushered in a new era for the financial system. Big Data, automation and global interconnectivity have brought with them a profound change in the way that goods and services in all sectors are produced, marketed and distributed. The financial sector is no exception to this, and financial organisations are having to learn to adapt and incorporate new technologies as part of this transformation whilst ensuring that any innovations are safe and beneficial for society.

On the 4th November, the Spanish senate approved the law for the Digital Transformation of the Financial System, a law with two main objectives: firstly, to guarantee that financial authorities have the appropriate instruments at their disposal to continue performing their functions; and secondly, to use innovation to achieve equitable development in productive sectors through better access to finance.

This new legislation includes the creation of a regulatory sandbox, a safe testing environment designed to promote innovation in financial services, particularly for the fintech sector, which includes projects involving blockchain-based cryptocurrencies. The aim is to adapt compliance with strict financial regulations to the growth and pace of more innovative businesses in such a way that the fintech sector isn’t stifled by regulation but protections for consumer rights are still guaranteed.

Through this legislation, start-ups related to financial services, capital markets, insurance, payment methods, personal finances, loans, blockchain or cryptocurrencies like Bitcoin will have a space to develop their proposals for the digital transformation of the Spanish financial system. Furthermore, the law itself proposes a legal sandbox to cover the corresponding guarantees to retain talent, boost innovation and update regulations in order to turn the Spanish financial sector into the European leader in terms of technological development.

The sandbox will make it possible to carry out innovative technology projects in the financial sector within the legal and supervisory framework. This is a response to the recognition that boosting innovation is essential for balanced and sustainable economic development, but it also guarantees that technological changes will protect consumers and maintain the stability and integrity of markets by preventing money laundering and the funding of terrorism. In order to gain access to the financial sandbox, the law sets out the following requirements: the project must be innovative and applicable to the financial sector; the project must represent a significant advance; and the project must add value by facilitating regulatory compliance, improving the quality of financial products and services and increasing user protection by providing mechanisms that improve regulation or supervision.

The definitive approval of this law by the senate is a great step forward for financial innovation in Spain. The digital transformation has driven a structural technological change in society and businesses, and the distribution and marketing of goods and services requires this interconnectivity and these new tools whether we like it or not.

This law seeks to enhance the instruments needed to improve efficiency in the financial sector, the quality of services and in particular, security and protection against new risks. Ultimately, it’s a framework which aims to reinforce collaboration and coordination without changing the distribution and allocation of regulatory competencies in the institutional architecture of the financial system, and as such, represents a first step towards complete reform of the system.