BRUSSELS The European Commission could introduce EU passporting and lower regulatory requirements for financial technology firms, moves that could undercut London's leading position in "fintech" as Britain gets ready to leave the European Union.

The EU executive's vice president Valdis Dombrovskis said on Thursday that the Commission is considering how to regulate the expanding sector to encourage its development in Europe, while protecting consumers from risks that may emerge.

"Fintech" firms use modern technology to compete with traditional financial services providers, offering banking products such as payments, credit, deposits and wealth management more cheaply online.

"We need to be cautious in our approach, ensuring that this new industry has a space to grow," Dombrovskis told a news conference in Brussels.

He said the Commission was exploring new rules that would give fintech companies passporting rights to expand across borders and operate anywhere within the EU's single market.

That could threaten London's status as the European hub for fintech companies, because firms based there are likely to lose their passporting rights when Britain leaves the bloc at the end of a two-year divorce process due to start next week.

Continental rivals such as Berlin would then have a chance to become Europe's main centre for the flourishing new industry.

Dombrovskis said the Commission is considering the option of granting customised licences, which could imply lower capital requirements for fintech firms that provide less risky services.

Lower legal or capital requirements would reduce costs for fintech companies but may increase pressure on banks already squeezed in Europe by low interest rates and stiff competition.

As examples of innovative fintech firms "benefiting millions of Europeans," Dombrovskis cited online payment companies Sofort and Transferwise, peer-to-peer and crowdfunding firms Twino and Funderbeam, and asset management services Nutmeg and eToro.

A three-month-long public consultation launched by the Commission on Thursday will gather information from market actors and other interested parties, and will be followed by possible legislative proposals.

ACTION PLAN

Separately, the Commission published on Thursday an action plan to cut costs and boost consumer protection across a range of financial services, including payments, insurance and loans, confirming a Reuters report last week.

It said it will propose rules by the end of the year to cut retail fees imposed on payments made across borders inside the EU with currencies other than the euro.

"For example, some Romanian and Bulgarian banks may currently charge between 15 euros and 30 euros for a cross-border transfer equivalent to 100 euros," the document said, making clear the new rules will cut these fees.

If approved by legislators and EU states, the measure would hit banks, which profit most from the charges. Fintech payment services already offer much lower fees.

The Commission is also considering measures next year to make conversion rates more transparent for EU consumers using payment cards or withdrawing money in other member states, in a bid to bring down costs.

Consumers group BEUC welcomed the proposals and called for an outright ban on so-called dynamic currency conversion, which allows consumers to choose the currency in which they want to pay when abroad. BEUC said this was "just a ploy to get consumers to pay more" because conversion calculations are too complicated to be carried out on the spot.

Brussels also plans to make it easier for consumers to switch between retail financial services and to improve the reliability of comparison websites, the action plan said.

Priority actions in retail financial services for the next two years listed in the paper also include improving price-transparency and protection for people renting cars and drivers who are victims of accidents outside their country.

It proposes common standards to assess consumers' financial credentials by the end of 2019 to make it easier to get a loan in another EU country. In the initial draft, this proposal was foreseen for the end of 2018.

Banks cautiously welcomed the proposals to favour cross-border activities, and called for clear rules to support innovation, the European Banking Federation said.

(Reporting by Francesco Guarascio; Editing by Catherine Evans)