The European Union and its member states have a vision of a digital economy that is not only borderless but also secure. The European Commission has proposed the EU digital sovereignty legislation to achieve this.
The legislation will provide a legal framework for how data flows between EU member countries, ensuring there are no security loopholes and creating an environment where consumers’ privacy is always protected.
Here, we explain the initiative and how it will help the financial sector to boost customer retention by personalizing services.
The EU digital sovereignty explained
The EU’s digital sovereignty policy will allow the bloc and its member states to set standards for data protection, cybersecurity, and online platforms, as well as regulating and taxing digital companies operating within their borders.
The EU has been working to strengthen its digital sovereignty in recent years through initiatives such as the General Data Protection Regulation (GDPR), the Digital Services Act (DSA), and digital wallet proposal. These efforts aim to give EU citizens greater control over their data and to create a level playing field for digital companies operating within the EU.
At the same time, the EU is also seeking to reduce its dependence on foreign digital technologies and build up its capabilities in areas such as cloud computing, ethically designed artificial intelligence, and cybersecurity. This includes investing in research and development, supporting European start-ups, and promoting cross-border collaboration with EU member states.
The ultimate goal of the EU’s digital sovereignty legislation is to ensure that the bloc and its citizens can reap the benefits of the digital revolution while maintaining control over their digital destiny.
Why is it needed?
Over the past ten years, the EU economy has greatly benefited from cutting-edge technologies such as 5G, AI, cloud computing, and the Internet of Things.
The coronavirus pandemic also highlighted the crucial role played by the tech sector in ensuring the continuity of social life, businesses, and administrations and has accelerated the need for sovereign digital technologies, the European Parliament says. According to the European Parliament, these technologies have become strategic assets for the EU, with the global market for new digital technologies predicted to hit €2.2 trillion by 2025.
However, the influence of non-EU tech companies has become a concern for policymakers, particularly regarding their impact on the EU’s data economy and innovation potential, on EU privacy and data protection, and the establishment of a secure and safe digital environment, the European Parliament says in its Digital Sovereignty for Europe briefing paper.
The prevalence of high-profile data breaches, data-sharing practices, and cyber-attacks played a significant role in raising awareness and driving regulatory action under the GDPR. A good example is the 2018 Cambridge Analytica scandal, in which Facebook allowed the personal data of more than 87 million users to be harvested without their consent.
The EU’s efforts to reduce its dependence on foreign digital technologies and build up its capabilities in cybersecurity highlight the importance of digital sovereignty in protecting the bloc’s interests.
How does it work?
The legislation allows member states to control their digital infrastructure and data. This means they can set their own standards for data protection, cybersecurity, and online platforms, as well as regulate and tax digital companies operating within their borders. But implementing EU digital sovereignty involves various measures and policies to protect the EU’s digital interests.
One of its key measures is the GDPR, which came into effect in 2016 and gives EU citizens greater control over their data by imposing strict rules on how companies can handle it. The GDPR also gives EU member states the power to impose penalties on companies that violate these rules. This ensures that EU citizens’ data is protected and companies are held accountable for data misuse.
Another measure is the EU’s effort to reduce its dependence on foreign digital technologies and build up its capabilities in cybersecurity. This involves investment in research and development of new technologies and collaboration with EU member states to develop new standards and policies that promote digital sovereignty.
In terms of regulating digital companies operating within the EU, the European Parliament has also introduced measures such as the DSA, which began in August, and the 2022 Digital Markets Act (DMA). The DSA aims to regulate online platforms, including tech giants Google, Meta, Apple, and Amazon, to ensure that they take responsibility for the content that they host. The DMA seeks to prevent dominant digital companies from engaging in anti-competitive behavior and abusing their market power.
What does it mean for the banking and financial services sector?
There are numerous benefits for the EU’s banking and financial services sector under the EU’s digital sovereignty. While there are calls to issue specific guidelines for applying the EU data protection principles in the financial services sector, the EU’s digital wallet (EUDI) proposal will help banks create more personalized customer services.
For instance, they can provide access to digital data stored in various systems, such as online banking, which can help improve fraud detection and optimize cross-selling opportunities based on purchasing behavior analysis. Additionally, banks can offer new products like peer-to-peer payments or instant loan approvals based on credit scores obtained through digital identity validation systems.
The EUDI, which is currently in the pilot stage, also allows banks to establish a secure digital relationship with customers by providing better services and enabling customers to make informed financial decisions.
However, the legislation will mean that financial institutions operating within the EU will be subject to stricter regulations and standards that will hold them accountable for data breaches or cyber-attacks.
The digital sovereignty initiative will help ensure that the banking and financial services sector operates within a safe and regulated digital environment, ultimately protecting consumers and maintaining the financial system’s stability.
What are the benefits for citizens?
There will be numerous advantages for citizens, including a secure and convenient way to access various online services, saving them time and money. It will also enhance the trust in online transactions by reducing the risk of fraud and cybercrime.
Furthermore, they can decide where their data is stored, which organization can access it, and keep track of sharing their information.
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