BELGIUM: An Introduction to FinTech Legal

General Introduction and 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 about ten years ago due to developments mainly in the field of alternative financing (crowdfunding, peer-to-peer lending, etc), rapidly followed by significant evolutions in the payments sector obviously powered through the regulatory innovation brought about by PSD2. Popular payment solutions offered by fintech companies in Belgium include retail payment platforms and remittance services, but an important part of the market is working on B2B payment services such as professional FX payments for both small and medium-sized enterprises and large companies with an international outreach. As a result of Brexit, very high-profile UK payment service providers, like MoneyGram, TransferWise, Ebury and WorldRemit, chose Brussels as their outpost to continue serving the continent. The arrival of these players added a lot of maturity to this sector in Belgium.

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 (such as Brexit) or mere coincidence but is rather the result of a steady, sustainable and attractive local ecosystem.

Next to alternative financing solutions and payment platforms, we also see several automated investment solutions (robo-advisers) and an important number of infrastructure and enabling technology service providers offering regtech, data and accounting solutions in Belgium. Although Belgium counts a few local champions developing well internationally, blockchain and crypto-initiatives/ICOs remain rarer phenomena in the Belgian market.

After the COVID-19 crisis, as everywhere, contactless payments grew exponentially in Belgium. In general, the payment sector remains very strong in Belgium, but other sectors have expanded recently, such as consumer credit, with the rise of Buy Now Pay Later solutions. Insurtech companies are also on the rise and the setting up of a subsidiary of Lloyd’s of London in Brussels in approximately 2018 is certainly a good sign for this particular market. Finally, we also see a significant growth of regtech companies providing unregulated support services (on fraud detection, AML compliance etc) to financial institutions.

Fintech Ecosystem

The relationship between fintech companies and incumbents has evolved over the years from an initial denial of their existence by the traditional banks through a phase of mistrust and competition to today’s situation where a lot of collaboration is happening. Banks and other traditional financial groups are now 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 organisation has brought the fintech sector together and facilitated several collaborations in the field.

More recently, another non-profit organisation, PayBelgium, has been created to represent the Belgian payments industry and its interests to policymakers. It focuses on developing common policy positions and engaging with the regulators to defend the industry’s interests. The traditional banking sector also regularly participates with fintech incubators, and both the Belgian Financial Sector Federation and the European Banking Federation are actively involved in structuring the fintech ecosystem.

Regulation

Belgian financial regulation is mainly based on EU directives. Most of the time, a maximum harmonisation approach is taken by the Belgian legislature, avoiding gold-plating practices. The main pieces of financial legislation (PSD2, MiFID2, Banking Directive, IDD, etc) that matter to fintech initiatives are therefore very similar (if not identical) to the legislation applied in other European jurisdictions. 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 for a new local licence in targeted markets each time.

When certain subsectors remain overlooked by the European legislature, the Belgian authorities try to put in place dedicated pieces of legislation until appropriate action is taken at the EU level. One example of this is the regulation adopted by the Belgian financial regulator (FSMA) to regulate the advertisement of cryptocurrency to retail clients.

Regulators

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); reinsurance companies; e-money and payment institutions; and large stockbroking firms (next to more general central bank macroeconomic responsibilities). Due to the nature of its competences (payment services and (challenger) banking, among others), the NBB is a regulator that is very often confronted with fintech initiatives.

It has put dedicated teams in place to deal with each type of licence separately. Generally speaking, while the NBB’s supervision has become stricter over the last few years (as is the case in general in the EEA), the NBB is firm but pragmatic, open to innovation and tech-savvy, with high-quality supervision.

FSMA is the competent supervisor when it comes to the prudential regime applicable to smaller investment firms, regulated credit providers, crowdfunding platforms, and banking, investment and insurance intermediaries. FSMA is also in charge of supervising virtual asset service providers (offering crypto-related services), as well as overseeing the rules of conduct applicable to insurance and investment services, next to more general authority over public offers, listed companies and the financial markets. It is also FSMA (in its role as supervisor of financial markets and information) that closely follows the evolution of cryptocurrencies and ICOs, mostly by issuing warnings on the dangers associated with these types of assets and investment structures.

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.

Finally, the Federal Public Service Economy has very specific powers over the rules of conduct applicable to regulated consumer credits and payment services.

Outlook

Fintech companies from around the world continue to be attracted by the Belgian professional and tech-savvy regulators who accept interacting in English; the central location of Belgium in Europe; the 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. Fintech is here to stay in Belgium and we expect it to continue to grow in the years to come.