So 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 FCAs method of getting start-up companies through the regulatory gates as fast as possible. 10 start-ups 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 July 8, with firms selected mid0August 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 start-ups 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.
The last category is illustrated by Apple Pay for example; the middle one is the whole area of robo-advice; whilst the first is where you find peer-to-peer lending and payments products like PayPal.
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 newco’s 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 amongst regulators. Some regulators want a harmonized approach but a harmonized approach doesn’t help much if you are staking your future on being THE Global Financial Centre long-term. So of course there is competition amongst regulators to attract innovation. That’s why the FCA is doing this, working alongside UKGov and Innovate Finance to make it happen.
With that in mind, 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. Seemingly, the European Commission, France, Germany, the USA 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 sub-set 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 also 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.