The Financial Conduct Authority Annual Report: “The FCA has been a consistent champion of Fintech and Regtech”

The leading financial regulator in the United Kingdom released their annual report this week. The Financial Conduct Authority (FCA) tackled a wide spectrum of issues in the report including the forthcoming separation from Europe. But the FCA also addressed their ongoing intent to foster an ecosystem of financial innovation.

In opening remarks, Charles Randell, Chair of the FCA, stated;

“The FCA has been a consistent champion of Fintech and Regtech.  Our advocacy and experience has encouraged regulators in other jurisdictions to follow suit. I hope and expect that the number of these joint programmes, both formal and informal, will grow. Not least because financial innovation on a global scale requires consistent standards of global regulation.”

Vital to this advocacy and support of Fintech innovation is the FCA’s competition mandate which is a characteristic that exists in few financial regulatory bodies around the world. Fostering competition is by mission, thus the FCA must view every rule and regulation from the perspective of enabling smaller firms to emerge to challenge entrenched incumbents.

The document states;

“Our mandate to promote competition is the main reason for our work on Financial Technology, known as Fintech, which continues to transform firms’ products and services. The growth in online-only banks, savings accounts and payments has changed consumers’ expectations on price and delivery. Innovation has also made it much easier for consumers to shop around: over 25 million people used price comparison sites in 2016.”

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The FCA is of the belief that innovation fueled by competition compels firms to offer new and better services. More choice. Lower prices. Other global financial regulators would do well to emulate this approach.

It is costly to launch a regulated financial service. The FCA  has mitigated this cost, to a certain degree, by providing an open line of communication for aspiring early stage firm in a principles based regulatory environment. The Fintech Sandbox, which has enrolled over 70 Fintechs, is another path to streamline a service that must remain compliant to existing law.

An example of where actions speak louder than words is the fact that the FCA has authorised 10 new banks in the past year alone. Many of these new banks are digital only challenger banks.

Regarding digital assets, or “cryptoassets” as they are labeled by the FCA, the report explains;

“We will work collaboratively with industry, and national and international regulatory bodies to shape regulatory developments and standards on DLT.”

The FCA is working alongside the Bank of England and HM Treasury to determine the best approach.

Certainly, innovation must be balanced by pragmatic investor protection that assures an efficient market is at hand. But without embracing innovation, most certainly this Fintech transformation would run at a slower pace. The UK has become a leading Fintech hub and this accomplishment is partly due to the willingness of regulators to accept change.

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