The UK’s Financial Conduct Authority (FCA) has said that payments innovators must not be complacent about meeting regulatory requirements despite increasing fintech investment and growth.
Initiatives such as the FCA’s “regulatory sandbox” for testing new technologies, coupled with repeated pledges from UK Chancellor George Osborne to make the country a world-leading fintech centre, have created an optimistic mood across its burgeoning payments industry.
But Bob Ferguson, the head of department for Project Innovate, the FCA’s hub for innovative financial firms, yesterday issued a stark reminder that no matter how disruptive a business may consider itself to be, it remains subject to stringent regulatory requirements.
“We’re still regulators, and being innovative is not some kind of universal solvent that does away with the need to observe requirements that are there to safeguard consumers, or to safeguard the integrity of the financial system,” Ferguson said at a Westminster Business Forum event.
“Innovation is not a licence to cut corners.”
Katharine Braddick, HM Treasury’s director of international and EU financial services, said investment in UK fintech firms more than doubled to £410m in 2014, and is believed to contribute around £20bn in GDP.
Speaking at the same event, Braddick said she expects that trend to continue once figures for 2015 become available, praising the regulator for avoiding stifling innovative business models.
“For me as a policymaker, the main role right now is to ensure existing regulation does nothing to stop new technologies from emerging and developing, while ensuring consumers are still protected,” said Kay Swinburne MEP.
However, Ferguson was keen to differentiate between the work of the innovation hub and the actual process of gaining FCA authorisation, emphasising that not all firms that approach the regulator will qualify for support from Project Innovate.
“Authorisation decisions are not taken by the people in the innovation hub; I think that would lead to a conflict of roles and conflict of interest,” he said.
“While we supported a significant number of businesses last year, I have to say that we also declined to support another 150 or so who came to us.
“Some of the businesses were actually not as innovative as they cracked themselves up to be.”
According to Ferguson, 177 businesses were accepted by Project Innovate.
The FCA now intends to expand that remit by working with a greater number of large financial institutions and increasing collaboration with authorities overseas.
“We do want to do more with large incumbent institutions, whether they’re tech institutions or financial institutions, because a lot of innovation is capable of coming from those quarters as well,” he said.
“Very importantly for us, we want to do more in terms of international engagement.”
In August last year, a Project Innovate publication outlined intentions to partner with regulators in other jurisdictions to encourage a more widespread, pro-innovation approach to regulating the fintech sector.
Braddick echoed those comments, adding the government also intends to work with authorities in other EU member states to ensure European directives are implemented in a way that does not harm innovative businesses.
“Regulation in financial services is not purely domestic, or even chiefly domestic; regulation arises internationally and it arises from Europe, and that’s why the European aspect of this debate is so important,” she said.
“The absolute priority is to make sure it’s proportionate, and doesn’t constrain or smother innovation.
“It’s important that we respond to the actual risk, rather than trying to pre-empt risks that we don’t know will crystallise.”
Kay Swinburne MEP, a member of the European Parliament Committee on Economic and Monetary Affairs, said EU lawmakers have already started to take that message on board.
She said: “For me as a policymaker, the main role right now is to ensure existing regulation does nothing to stop new technologies from emerging and developing, while ensuring consumers are still protected.
“The opportunities for this sector are vast, but the dangers are still there.”
The FCA is currently working on implementing the EU-wide fourth Anti-Money Laundering Directive, which experts have described as the “latest wave” in tough financial crime controls to hit the industry.
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