Banking, Fintech Report Highlights UK’s Fast-Growing Financial Tech Space, while Challenges Include Centralized Cloud Providers

Payments specialist Banking Circle notes in a recent update on the payments, banking and Fintech space that there have been record-level investments in the UK’s vibrant Fintech sector, with $5.7 billion of VC invested across 317 deals so far in 2021.

Banking Circle‘s CIO, Michel André, recently noted that collaboration is helping banking platforms with addressing the barriers and challenges created by legacy tech.

Company Co-Head of Institutional Banking, Jon Levine, has also pointed out that more needs to be done to make cross-border transactions work for corporates.

While sharing some key highlights from the industry, Banking Circle’s report noted that the Bank of England (BoE) has expressed concerns regarding Big Tech cloud providers. In its bi-annual Financial Stability Report, the BoE has cautioned that financial stability risks are potentially significant due to the growing “concentration of power” of global cloud providers like Google, Amazon and Microsoft.

With concerns of “over-reliance on a smaller number of cloud service providers,”  the BoE has singled out the “secretive practices” of these services and called for additional policy measures.

Governor Andrew Bailey also highlighted fears that the problem “may worsen as banks move critical infrastructure to the cloud, as Big Tech companies have too much influence over the future stability of the financial system,” the report noted while adding that he has advised that “greater direct regulatory oversight” is required.

The report further noted that the Market Infrastructure Board has made the decision “to move forward with fully-fledged ISO 20022 message implementation in the T2-T2S consolidation project, instead of pursuing the ‘like-for-like’ alternative which was also under consideration.”

This development comes as SWIFT (Society for Worldwide Interbank Financial Telecommunications) reveals that an in-flow translation solution will be available which should allow the conversion of ISO 20022 messages “to multi-format MT/MX messages for correspondent banks until they have migrated to the ISO 20022 message standard.”

ISO 20022 provides a standardized approach to messaging formats when conducting international payments. The global adoption of the ISO 20022 standard will have “a substantial impact on the way payments are made and the transfer of financial information,” the report added while noting that to continue to push this forward, Pay.UK has released published its first set of technical materials for organizations implementing ISO 20022 and “moving to the Next Generation Standard for UK retail payments.”

As stated in the report:

“UK Fintech investment closed the first six months of 2021 on a high, with $5.7 billion of venture capital invested across 317 deals – a third higher than the total investment secured across the whole of last year and topping what was previously the highest full-year amount of $4.6 billion in 2019.”

The report added:

“UK Fintechs are thriving, with investors confident in the growth and anticipated returns in the sector, and the country ranks second only to the US, with Brazil, Germany and India following.”

During H1 2021, 13 UK Fintechs finalized mega deals, again surpassing previous records that were set back in 2019, when 10 companies secured mega-rounds or those valued at $100 million or more.

While sharing other updates, the report noted that the European Commission has shared new legislative proposals “to strengthen the EU’s Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) rules.” As mentioned in the report, the proposals “focus on creating a brand new EU authority to combat money laundering.”

As explained in the update, the aim is “to improve the detection of suspicious transactions and activities, as well as close the loopholes that criminals take advantage of to launder illicit proceeds or finance terrorist activities through the financial system.”

Eurosystem, the governing council of the European Central Bank (ECB) has now “launched the investigation phase of a digital euro project thanks to the “encouraging results” of previous analysis and experiments,” the report added. It also mentioned that the initiative will kick off with “a two year long investigation phase, designed to address key issues around design and distribution, as well as how to avoid any undesirable impact on financial stability and monetary policy.”

Eurosystem has “reiterated that a digital euro would complement cash rather than replace it” and it will work with the European Parliament and other European decision-makers on the project, “as well as citizens, merchants, and the payments industry,” the report confirmed.

As stated in the report, the Payment Systems Regulator (PSR) has used its Summer 2021 update “to share developments on its work to tackle Authorised Push Payment (APP) scams and the implementation of the second phase of Confirmation of Payee.” Also covered is “a review of the PSR’s work with the FCA on access to cash, including actions to support the government as it consults on legislative proposals this summer.” The report added that information on its Competition Act investigation is included as well.

Notably, the UK FCA has released an updated assessment of the UK’s cash infrastructure and wider banking services, “alongside its commissioned consumer research exploring the needs and preferences of those who identify themselves as being reliant on cash,” the report noted. It highlights the reality that “despite a huge shift to digitalization, access to cash and banking services remain vital for many consumers and businesses,” the report added.

Going on to share other important industry developments, the European Securities and Markets Authority (ESMA) has released its third report into “the use of sanctions by National Competent Authorities (NCAs) under the Markets in Financial Instruments Directive (MiFID II), finding an increase in 2020 compared to both 2019 and 2018.”

As noted in the report, this increase “is seen in both the number of fines, and the amount fined. NCAs imposed a total of 613 sanctions and measures last year, with an aggregated value of approximately €8.4 million.” This is “compared to 371 sanctions and measures and around €1.8 million in 2019,” the report added.

But it is important “to consider that there are some differences in the way sanctions and measures are distinguished and identified,” the report clarified. As mentioned in the update, the ESMA will continue “to proceed issuing reports on sanctions on an annual basis for future reporting periods.”

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