How do we regulate a future not yet written?

Finextra

21 hours ago

0
This content has been selected, created and edited by the Finextra editorial team based upon its relevance and interest to our community.
This is an excerpt from The Future of European Fintech 2025: A Money20/20 Special Edition.
According to the European Fintech Association, the fintech industry has attracted the largest share of all VC funding over the last five years, worth around $85 billion. This showcases the strong potential of fintech in Europe, and how the sector will be a driver for economic growth – with the industry expecting to grow more than fivefold over 2021 figures (5.5x) and be worth $190 billion by 2030. As fintech increasingly enters the social and economic fabric of Europe, the question of governance is no longer one of compliance with rules.
In 2025, new rules such as PSD3, MiCA, DORA, and MiFID II are beginning to converge. Even though their real impact will be a five- to 10 year play, actually rewriting the way fintech is imagined, deployed, and depended upon will happen in real-time. As Vibhor Narang, executive director, structured solutions cash management, transaction banking, Europe, Standard Chartered, observes, 'the evolving regulatory landscape in Europe is not merely reshaping fintech. It's redefining the very foundations of financial innovation and collaboration.'
Regulation will be more innovation driver than compliance tool
Looking forward to beyond 2025, regulation will be less of a brake and more of an active driver of innovation. The convergence of PSD3, MiCA, DORA, and MiFID II shows a Europe which is open, transparent, and bestows data rights that are not just regulated but architected to foster competitive environments. In Julija Fescenko, head of marketing and communication, Magnetiq Bank's view, 'these combined forces will drive standardisation and foster more innovation-friendly environments, provided implementation does not stifle agility.'
The industry should expect regulators stepping in to design digital infrastructure, particularly in relation to open finance. PSD3's extension into safe data portability will broaden, enabling consumers to seamlessly coordinate financial experiences between providers in the future, just like
APIs do with software. Narang goes on: 'PSD3's extension into open finance […] is connecting previously siloed financial products into cohesive customer journeys.
This could influence the rise of modular finance: hyper-personalised financial 17 services constructed dynamically through regulated data-sharing protocols.'
Operational resilience will become a competitive differentiator
By 2030, operational resilience will not be a regulatory checkbox under DORA but a market expectation. Financial institutions that can assure service continuity and cybersecurity against volatility will be more trusted. Johnnie Martin, senior associate, Augmentum Fintech, believes that 'the need for the robust back-up systems required by DORA was brough into sharp relief.'
He adds: 'Fintechs are uniquely placed to deliver solutions to many of the problems that these regulations are trying to solve.' The fintech sector can expect fintech firms to create resilience-as-a-service offerings, including third-party monitoring products, stress tests managed by software, and disaster recovery solutions made in modules. With the entire fintech value chain now in the spotlight, resilience will no longer be each company's concern but a collective responsibility across the ecosystem.
MiCA will unleash a tokenised finance boom
MiCA's launch in 2025 is only the start. Within the next ten years, it will standardise digital asset adoption throughout Europe, opening doors to mass tokenisation of traditional assets, programmable payments, and the emergence of regulated stablecoins. This view is shared by Narang, who clarified that 'MiCA's unified framework […] is creating unprecedented opportunities for regulated innovation in digital assets.'
In the future, controlled digital wallets that can deal with fiat and tokenised assets may be incorporated into mainstream banks. MiCA will prompt traditional institutions to enter Web3 finance, especially as corporate treasuries search for programmable yield-generating products. Regulation will, however, have to catch up with innovation in DeFi, which MiCA addresses only marginally at present. This suggests the introduction of MiCA II, a second, more advanced regulatory layer that addresses staking, algorithmic stablecoins, and cross-border DeFi protocols.
Europe is at a fintech leadership fork
While Europe once led the world in open banking, that leadership is now in question. Ahmed Badr, chief operating officer, GoCardless, explores how 'Europe led the world in open banking innovation a decade ago, but is now at risk of falling behind as other countries leapfrog ahead.'
The next few years will tell whether the continent doubles down on competitive, consumer-driven innovation, or allows red tape to stifle momentum. Badr calls for 'greater ambition and support for innovators,' and that need is likely to intensify as global players, especially in Asia and the Middle East, move aggressively on embedded finance and real-time cross-border infrastructure.
AI governance will define institutional trust
The most uncertain, and urgent, regulatory horizon is artificial intelligence. By 2030, AI will be embedded into every tier of financial services, from real-time lending decisions to autonomous risk scoring and investor advice. But trust in this future hinges on one factor: ethical regulation. Tom Moore, head of financial services at Moore Kingston Smith, mentions that 'the risks of bias, misinformation, or system failure are very real. These will only grow as generative AI is used more and more for personalised financial advice.'
Leading institutions are already preparing for this shift. Wendy Redshaw, chief digital information officer, NatWest Group, outlines a framework based on explainability, fairness, and human oversight: 'We ensure AI systems are subject to human oversight […] that their decisions can be explained, and that they are free from unfair bias.'
Standard Chartered has also formalised this approach with its Responsible Artificial Intelligence Framework, embedding 'governance, continuous oversight, and robust data privacy into every deployment. Leadership will be defined by those who not only harness the power of AI, but also set the benchmark for ethical stewardship,' says Narang.
By the end of the decade, we predict a harmonised European AI regulation for financial services, likely inspired by the EU AI Act but more tailored to the risk profile of finance. This will require firms to perform continuous AI audits, maintain decision traceability, and prove non-discrimination by design.
Governance will become real-time and inclusive
As data quantities grow and digital services get spread across third-party platforms, strict regulation will become less suitable. Europe's governance model will be required to change towards real-time supervision that combines regtech solutions, AI-driven anomaly detection, and adaptive policy updates. This implies a future where regulators and businesses collaborate continuously and in the long term, rather than sporadically through compliance tests.
Fescenko continues to say that 'fintech companies must take the initiative in self-regulation. This involves conducting regular AI audits and implementing strong governance structures.' Ultimately, regulatory agility will become as critical as business agility.
Toward a new regulatory future
Europe's regulation of fintech is changing from a rulebook-based approach to a co-created, principle-based approach. The successful institutions will be those that redefine compliance a constraining idea rather than as a strategic background for expansion and growth. Redshaw says 'we are focused on aligning innovation with regulation. Our priority remains on supporting customers with the best, safest and most compliant digital experiences.'
Looking ahead, regulation will no longer chase innovation, it will partner with it. The governance of tomorrow will demand new capabilities: regulatory forecasting, ethical design thinking, real-time oversight, and cross-sector collaboration. As Narang aptly concludes: 'The institutions that will thrive
[…] will be those that view regulatory compliance not as a burden, but as a strategic enabler that builds trust, enhances service delivery, and accelerates responsible innovation.'
Europe now has the opportunity to set the gold standard for fintech regulation in the digital age, not by slowing change, but by governing it wisely.