Decoding Fintech Regulations in 2025: What’s Next for Europe?

This article is published by Romanian Fintech Association (Rofin.Tech) in collaboration with FINE (Fintech Innovation Network Europe)

As Europe solidifies its position as a global fintech leader, the regulatory landscape has become a key battleground between fostering innovation and ensuring compliance. The introduction of regulations like the MiCA framework, PSD3, and DORA is transforming how fintech firms operate. For fintech startups in CEE, where regulatory frameworks vary significantly, the challenge remains: how can they navigate these regulations while maintaining agility and competitiveness?

The Foundation of Fintech Regulation in Europe

The European Union has adopted a regulation-first approach, prioritizing financial security standards while still promoting fintech innovation. The Markets in Crypto-Assets (MiCA) regulation, introduced in 2023 (Global Government Fintech, 2023 – „EU crypto regulation MiCA fully into force”), is a groundbreaking step that provides clear guidelines for digital assets, aiming to prevent fraud and ensure transparency across the EU. This makes the EU the first major jurisdiction with a comprehensive crypto regulation.

The Revised Payment Services Directive (PSD3) seeks to strengthen open banking, improving security while ensuring a competitive digital payment landscape. At the same time, GDPR, introduced in 2018, maintains strict data privacy laws, forcing fintechs to secure customer information more rigorously. Additionally, DORA, implemented in 2022, focuses on cybersecurity resilience, establishing risk management requirements that fintech firms must adopt.

While these regulations create a harmonized legal framework, their implementation varies across European nations. Lithuania has developed a fast-track licensing process, making it a fintech hub, whereas Germany maintains a strict supervisory model through BaFin, enforcing high compliance standards. France has proactively regulated AI-driven fintech, setting a precedent for future AI financial governance.

Case Studies: How Europe Regulates Fintech in Practice

Lithuania has emerged as one of Europe’s fastest-growing fintech markets, largely due to its simplified electronic money institution (EMI) licensing framework. The Bank of Lithuania has created a fintech-friendly regulatory environment that has attracted companies like Revolut, which established its European banking operations in the country. Lithuania adheres to EU regulations like PSD2, MiCA, and GDPR, while still maintaining ease of entry for fintech startups.

As a result, Lithuania is the largest fintech hub in the EU by licenses issued. This shows how flexible regulations can encourage investment and economic growth. Particularly noteworthy is the remarkable increase in the share of blockchain and cryptocurrency-focused Fintechs, which grew from 8% in 2022 to 13% in 2023. This growth reflects Lithuania’s evolving role as a prominent player in the global blockchain and virtual assets space. (The Fintech Landscape in Lithuania, 2023-2024 Report)

In contrast, Germany’s fintech regulations became significantly stricter following the Wirecard scandal in 2020, one of the largest financial fraud cases in Europe. Wirecard, once a fintech giant valued at $24 billion, collapsed due to massive fraud and regulatory oversight failures (Reuters, 2020). This scandal prompted BaFin to tighten compliance rules, particularly for companies handling customer funds.

Since then, many fintechs feel at a competitive disadvantage within Europe, with 53% claiming that Germany’s regulatory requirements are more burdensome compared to other European fintech hubs. Fintechs express frustration with the lengthy and complex application processes for banking and financial services, which 75% find time-consuming (around 2 years to have the license) and difficult to plan (BDO Fintech Report 2023-2024). While this ensures greater financial security, critics argue that it limits innovation by making compliance too costly for smaller startups.

On the other hand, in May 2024, France’s ACPR released a discussion paper on AI governance in finance, focusing on data management, performance, stability, and explainability. A key workshop addressed AI-driven credit models, stressing the need for clear validation protocols. The ACPR emphasized robust governance, human oversight, and ongoing audits. Meanwhile, the AMF explored using natural language processing to analyze corporate disclosures. These initiatives highlight France’s proactive approach to regulating AI in fintech, ensuring compliance, transparency, and responsible innovation.. (Regulation Tomorrow, AI and financial regulation – France)

Challenges in Fintech Regulation Across Europe

Despite ongoing efforts to harmonize fintech regulation, challenges persist, making cross-border expansion difficult for fintech companies. One of the most pressing issues is regulatory fragmentation, where fintech firms licensed in one country face entirely different compliance requirements in another.

For example, a fintech company licensed in Lithuania may face complex licensing hurdles when expanding into Germany, increasing costs and slowing market entry. The EU needs to further unify fintech licensing, similar to passporting rights in traditional banking, which allow banks to operate seamlessly across multiple EU countries.

Another challenge is balancing innovation with security. Germany’s post-Wirecard compliance measures serve as a model for fraud prevention, but they also create barriers for fintech startups. Meanwhile, countries with looser regulations, like Lithuania, attract more fintech investment but pose potential risks. A proportional regulatory approach—where compliance scales with a company’s risk level—would help strike the right balance.

AI-driven fintech regulation remains a gray area. While France has introduced AI-specific rules, most EU countries lack a clear framework for algorithm-driven financial services. The EU must develop standardized AI regulations that ensure fairness and accountability, particularly in lending and investment algorithms.

Lastly, In Romania, the Ministry of Finance has taken a significant step toward integrating fintech solutions into public administration by partnering with the Romanian Fintech Association (RoFintech). This collaboration aims to modernize public financial services, improve digital infrastructure, and facilitate interconnectivity between financial systems using API technologies. The initiative also seeks to align Romania’s financial digitalization efforts with European regulatory frameworks, ensuring that internet banking interfaces and data-sharing mechanisms are optimized according to best practices across the EU.

Cosmin Cosma, President of the Romanian Fintech Association, highlights the importance of this partnership in shaping Romania’s digital finance ecosystem:

„We aim to bring European best practices into the development of new financial systems and infrastructure. The fintech companies in our association have extensive expertise in creating and managing next-generation financial technologies, and we see this collaboration as a crucial first step toward building a fully digital and efficient public finance system in Romania„

Question for Policymakers

Regulators and fintech innovators share a common goal: fostering a secure, transparent, and competitive financial ecosystem. The key question now is whether Europe’s fintech regulations are adaptable enough to encourage innovation or if they risk slowing technological advancements through excessive compliance measures.

As financial technology rapidly evolves, with AI, crypto, and decentralized finance (DeFi) reshaping the industry, both regulators and fintech firms must work together to ensure that frameworks remain comprehensive yet flexible. Rather than being at odds, collaboration between policymakers and industry leaders can lead to balanced regulations that protect consumers, maintain financial stability, and allow emerging technologies to thrive. By engaging in ongoing dialogue, regulatory sandboxes, and adaptive policymaking, both sides can shape a fintech landscape that is both innovative and secure.

Given the rapid evolution of financial technology, policymakers must determine whether current regulations can adapt to new financial models. With AI, crypto, and decentralized finance (DeFi) platforms gaining momentum, lawmakers must ensure that regulations are both comprehensive and flexible enough to accommodate emerging fintech trends.

The Future of Fintech Regulation in Europe

As fintech continues to evolve, European regulations will likely undergo significant transformations. One of the most anticipated changes is the introduction of a unified fintech licensing framework, which would streamline regulatory processes across EU countries and facilitate cross-border fintech operations.

Regulators are also expected to strengthen AI governance policies, ensuring that algorithm-driven financial services remain transparent and accountable. DORA’s cybersecurity mandates will likely tighten compliance requirements, reducing the risk of cyberattacks on financial institutions. Additionally, as DeFi platforms expand, clearer rules on decentralized lending and crypto staking will emerge, providing a structured regulatory framework for blockchain-based finance.

Conclusion

Europe’s approach to fintech regulation has successfully created a secure yet competitive market, but challenges remain. The harmonization of licensing, proportional compliance standards, and clearer AI and DeFi regulations will be critical to ensuring a future where fintech innovation can thrive without compromising financial security.

As the EU continues to lead global fintech regulation, the decisions made today will determine the future of digital finance for decades to come.

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FINE (Fintech Innovation Network Europe) is an independent platform dedicated to fostering cross-border fintech collaboration, regulatory dialogue, and industry growth across Europe. FINE connects fintech companies, policymakers, and financial institutions to promote best practices, innovation-driven regulatory frameworks, and market expansion opportunities.