The European Union's banking, insurance and markets regulators have called for rapid action to ensure the bloc's regulatory and supervisory framework for financial services "remains fit for purpose" amid the growing digitalization of the sector.

There is an increasing use of innovative technologies in financial markets that facilitate changes to value chains, the EBA, the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority said in their response to the European Commission's February 2021 request for advice on how to deal with digital finance. They also said there is a growing dependence on digital platforms and the emergence of so-called "mixed activity groups" or MAGs — tech giants such as Amazon.com Inc., Apple Inc., Alphabet Inc. (Google), Facebook (now Meta Platforms Inc.) and other tech and third-party companies that offer financial and nonfinancial services.

The regulators mapped out proposals aimed at addressing potential risks posed by the trends including taking an holistic approach to the regulation of the market, creating new supplementary supervision structures, bolstering national regulators' expertise and resources to effectively monitor the market, and enabling cross-border cooperation between financial and other relevant authorities.

The supervisors also proposed strengthening consumer protection in a digital context. Actions suggested include enhancing disclosures, complaints handling mechanisms, measures for preventing mis-selling of tied or bundled products, and improving digital and financial literacy.

The European Commission should promote further convergence in the classification of cross-border services and in addressing money-laundering and terrorism financing risks in a digital setting, the regulators said in their 109-page joint report.

The proposals also include conducting regular assessments of MAGs, including reviewing prudential consolidation requirements, to adequately capture the nature and inherent risks of new combinations of activities they carry out.

The supervisory authorities also noted the growth of digital trading platforms coinciding with the emergence of new trends such as "social trading" and sharing of investment advice over digital channels, and proposed active monitoring of social media use in relation to financial services to determine whether regulatory action is needed.