Latest Products

FCA looks at Fintech Future

Thursday 21 June 2018


Fintech

 
So how is the UK handing the question of competition and innovation in their own markets?

While competition and innovation seem to go hand-in-hand, sometimes they need help from yet another invisible hand, says Christopher Woolard, Executive Director of Strategy and Competition at the Financial Conduct Authority (FCA).

“At the heart of Innovate is the understanding that regulation designed to fit different products at different points in time can hinder the progress of new technologies created for the here and now,” Woolard explained.

While Woolard spoke broadly about competition, the focus of his talk was on the type of future fintech products could bring to the financial market.

FCA’s Innovate and the regulatory sandbox are just some the ways the regulator is able to lend an invisible helping hand.

This is very similar to what the Australian Securities and Investments Commission (ASIC) is trying to do with their innovation sandbox and Innovation Hub. However, the Australian sandbox came under recent criticism from the local Insurtech community who felt it was not necessarily fit-for-purpose when considering the insurance business model, and indeed, it has been reported by the Australian Financial Review that the insurtech community has all but given up on the sandbox.

According to the FCA, it is not interested in helping innovation for innovation’s sake. Instead, it is looking for those new financial products that will contribute to the market and the community.

“We are looking for products that serve a genuine consumer need and that offer a solution to an underserved corner of the market or a new approach to a thorny issue,” said Woolard.

The FCA, like ASIC, have signed numerous memorandums of understanding regarding the regulatory sand box and are exploring the notion of allowing participants into the sandbox to test in multiple jurisdictions at the same time.

So what could global sand box look like? Here is the FCA’s proposal:

  1. Invite applicants to address pre-identified challenges:
    We know firms face certain regulatory problems that cross jurisdictional boundaries, for example developing innovative solutions to 
    Anti-Money Laundering (AML) compliance and Know Your Customer (KYC) on-boarding, and payments services that seek to transfer money cross-border. The global sandbox could help regulators and firms work together to define where these common problems exist, and collaborate to find solutions. Under this approach, participating regulators could set out areas where cross-border testing would be most beneficial, and invite firms to participate in the global sandbox to propose tests to explore these. Firms would benefit from having access to support from multiple regulators in the design and supervision of their test.
     
  2. Support specific firms with cross border ambitions across any sector:
    Innovation is a powerful way of encouraging greater competition in the market. The global sandbox could allow firms that have ambitions to grow in scale in different markets to bring their idea to market more quickly and easily, creating more effective competition. Our experience with the regulatory sandbox in the UK has identified some firms that may benefit from this, and we are keen to hear from firms who could see value in testing their ideas in multiple markets.
     
  3. Seek to address policy and regulatory challenges:
    The global sandbox could convene joint events and/or papers on emerging trends and challenges to leverage the diverse experience of participating regulators and firms, and work toward consistent approaches.

For those operating out of the UK, click here to respond to some of the FCA’s questions for consideration.