I just attended a really interesting two-day meeting that covered all things blockchain, regulations, innovation and more. I’ll blog about the bits I can in the next few days, and thought I’d start with an overview of the Financial Conduct Authority’s (FCA) Regulatory Sandbox and Project Innovate.
The Regulatory Sandbox was announced at Innovate Finance last month, and is the FCA’s method of getting startup companies through the regulatory gates as fast as possible. 10 startups will join the program this year, with applications to join open now. The Regulatory Sandbox provides a ‘safe space’ for businesses to test innovative products, services, business models and delivery mechanisms without immediately incurring all the normal regulatory consequences. The objective is to encourage and deliver more effective competition in the interests of consumers. Applications can be made until 8 July, with firms selected mid-August for nurturing through end of year. A second wave then begins in January 2017.
This is just one of many innovation platforms the regulator has established through its innovation hub. The objectives of the innovation hub are to engage, support and encourage startups in the UK world of finance, with fintech firms generally falling into one of three categories:
- those dealing in regulated areas
- those dealing in soon-to-be regulated areas
- and those that will never be regulated.
This last category is illustrated by Apple Pay, for example; the middle one is the whole area of robo-advice; while the first is where you find peer-to-peer lending and payments products such as PayPal.
Project Innovate – encouraging competition
Anyway, the Regulatory Sandbox, Innovation Hub and Project Innovate are all there to encourage competition in the financial markets for the benefit of consumers. As a result, the regulator offers a program to get a restricted authorisation to provide financial products in just two months! Equally, they actively work with Newcos to get them through the regulatory doors.
This was interesting, as one of the non-UK regulators said that they had heard that the FCA was far more flexible about things than other regulators. The FCA said that they were just pragmatic. This led to a great exchange about competition among regulators. Some regulators want a harmonised approach, but a harmonised approach doesn’t help much if you’re staking your future on being THE global financial centre long-term. So of course there is competition among regulators to attract innovation. That’s why the FCA is doing this, working alongside UK government and Innovate Finance to make it happen. That’s why the FCA has signed agreements with regulators in other fintech-focused markets, including Australia, Hong Kong, India, Israel, Japan and Singapore, to follow their example.
Apparently, the European Commission, France, Germany, the US and Canada are also interested, but dialogue is less mature at this point. The key to their outlook is that regulations shouldn’t be seen as a bad thing to be overcome, but a positive capability to get things done at minimal risk to the markets, the economy and the customer.
In other words, we have fintech and the regulator wants some regtech to keep up. Regtech is a subset of fintech that focuses on technologies that may facilitate the delivery of regulatory requirements more efficiently and effectively than existing capabilities.
All in all, it’s fascinating to finally see regulators stepping up to the innovation challenge and being part of it. If you want to know more, follow the links above, and recommended reading would include Christopher Woolard’s speech at Innovate Finance on the Regulatory Sandbox, Deloitte’s report on regtech, and KPMG’s assessment of UK fintech.
– This article is reproduced with kind permission. Some minor changes have been made to reflect BankNXT style considerations. Read more here. Main image: Darko1981, Shutterstock.com
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