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New technologies in banking and payments are changing the financial services industry. By boosting innovation, the EU is creating a competitive financial sector while establishing rules that ensure financial stability and consumer protection.
What is digital finance?
Digital finance is the application of digital technologies, in particular digital ledger technology and tokenisation of assets, to financial activities.
Consumers and businesses increasingly rely on digital financial services, a trend accelerated by the COVID-19 pandemic. From mobile banking, e-commerce and contactless payments to asset management and cryptocurrencies, digital innovation is reshaping the financial sector.
This transformation creates new opportunities for companies to develop and innovate, generating growth and jobs. At the same time, it introduces risks, particularly related to cybersecurity, the financing of illicit activities, consumer protection and financial stability.
The EU aims to harness the benefits of digital finance while managing its risks. It seeks to create a competitive and innovative financial sector, ensure consumer protection, and create the conditions for strong European market players to lead in this sector.
Digital finance can be a catalyst for structural transformation, in how capital is raised, allocated, settled and supervised. It can compress the distance between savers and innovators, between small firms and deep pools of capital, and between national markets and a genuinely European market. This could lead to greater efficiency in capital allocation and lower financial system costs, all serving to better finance the real economy.
President Pierrakakis, President of the Eurogroup, letter to the President of the Euro Summit, António Costa, of 11 March 2026
What are distributed ledger technology and tokenisation of assets?
Broadly defined, a distributed ledger is a decentralised and consensually shared database through which a transaction is validated. This means that a network of computer-based 'nodes' can replace the traditional financial market architecture centred on a single register for recording transactions and asset ownership.
Based on distributed ledger technology (DLT), the 'tokenisation' of financial assets, i.e. issuing, storing and circulating assets in the form of blocks of code that contain all the assets' features and algorithms/rules for performing transactions in them, has gained prominence, first with crypto-assets and, increasingly, with 'traditional' financial assets such as bonds, investment funds, shares or commodities.
Digital euro
As digital finance evolves, the EU is working to introduce a digital euro, a digital form of central bank money, issued by the European Central Bank for retail use alongside physical cash.
The digital euro would complement, not replace, banknotes and coins. It would offer people and businesses an additional choice when paying, while preserving cash as a means of payment.
The digital euro could support the EU’s digital finance thanks to its potential as an additional, innovative and safe means of payment.
At the same time, it would contribute to Europe's strategic autonomy by reducing reliance on non-European payment solutions and strengthening the resilience of the EU's payment system.
In parallel, the European Central Bank is working on introducing a wholesale digital euro, to ensure that inter-bank or foreign-exchange transactions, for example, can be finalised in central bank money. This will strengthen EU financial markets as well as the international role of the euro.
The markets in crypto-assets regulation brings crypto-assets, crypto-asset issuers and crypto-asset service providers under one EU regulatory framework for the first time.
The framework covers issuers of so-called 'unbacked' crypto-assets, i.e. the vast majority of crypto assets, such as bitcoin, that have no reserve of financial assets to anchor their market value, and so-called ‘stablecoins’, as well as the trading venues and wallets where crypto-assets are held.
The new rules aim to:
better protect consumers and investors
better regulate risks related to crypto-assets
boost innovation and strengthen the EU’s role as a standard-setter for digital policy
Crypto-asset service providers can benefit from clear and harmonised rules and will only need one authorisation to operate throughout across the EU. However, they will have to meet strict requirements to protect consumers’ wallets and will be held liable if they lose investors’ crypto-assets. The European Banking Authority will keep a public register of non-compliant crypto-asset service providers.
Crypto-asset service providers also need to declare information on their environmental and climate footprint.
The markets in crypto-assets regulation entered into force in June 2023 and has been fully applicable since December 2024. The Council formally adopted the rules in May 2023.
Crypto-assets are digital representations of value or rights. Crypto-assets are one of the main distributed ledger technology applications for finance.
What are ‘stablecoins’?
Unlike 'unbacked' crypto-assets such as bitcoin, which are inevitably subject to market volatility in their valuations, 'stablecoins' are cryptocurrencies that attempt to peg their market value to some external reference, such as a traditional currency. Issuers of stablecoins typically set up a reserve of government debt securities, other high liquid assets and cash to back the value of the stablecoin and protect that peg.
Digital operational resilience act
As the financial sector becomes more dependent on digital processes and software, there are increased risks associated with disruption and threats to information and communication technology (ICT) systems.
The digital operational resilience act (DORA) will make sure that the European financial sector can cope with severe operational disruptions. DORA sets uniform requirements for the security of network and information systems of companies and organisations operating in the financial sector as well as critical third parties which provide ICT-related services to them, such as cloud platforms or data analytics services. All firms need to make sure they can withstand, respond to and recover from ICT-related disruptions and threats.
Council and Parliament negotiators reached a provisional agreement on DORA in May 2022. The Council formally adopted the rules in November 2022.
As part of its digital finance strategy, the EU is working to remove barriers related to the use of distributed ledger technology in financial markets.
The market integration and supervision package (MISP), proposed by the European Commission in December 2025, includes measures to support the wider use of DLT and improve the operation of financial markets throughout the EU.
The package builds on the experience of the existing DLT pilot regime and aims to make it easier for financial market participants to use DLT for trading and settlement of financial instruments and to scale up their business.
It also seeks to improve the integration and efficiency of EU capital markets by adapting existing rules to new technologies, while maintaining safeguards for financial stability and investor protection.
