Nikhil Rathi, Chief Executive of the UK Financial Conduct Authority (FCA), delivered a speech yesterday during a presentation at UK Fintech Week. Entitled, Levelling the playing field – Rathi provided perspective on innovation in financial services. He said that in 2019, Fintech revenue rose to £11 billion, nearly doubling in the past four years. Rathi noted that since the beginning of 2021, over $1 billion worth of investment capital went into the UK Fintech sector – a significant amount.
Rathi took over the helm of the top financial services regulator in 2020 during the midst of the COVID health crisis. Previously, he was Chief Executive of the London Stock Exchange and Director, Financial Services Group at HM Treasury.
During his speech, Rathi noted that success in Fintech has been enabled by “regulatory open-mindedness” not something typically affiliated with regulators. He said it was a balancing act between their competition mission and the need to protect consumers.
“Innovation comes with risk. New products and new firms fail. They can take consumers’ money with them. As a result, we, as regulator, need to understand new ideas and stay close to innovative firms. That is why, less than a year after the FCA was founded, we set up Project Innovate,” said Rathi. “This recognised that the financial services industry has high costs of entry, and so those wishing to join – with genuinely new ideas that support markets and provide choice to consumers – require additional regulatory support. We have now supported over 500 highly innovative firms, around a third of those that applied. 137 firms have now also passed through the Sandbox, in which new innovative ideas are safely tested before reaching the market. Of those, over half successfully completed their test. And those tests that did not go as planned provided intelligence about what works and what doesn’t, without risk to consumers or markets.”
Pointing to recommendations from the Chancellor, Rathi said they have been asked to “secure the right balance between a financial sector that is globally competitive, works for consumers, and is secure over the long-term.”
“… allowing firms in to compete with incumbents, but providing for quick action against those that put at risk consumer protection or market integrity,” Rathi explained.
Rathi said they will be developing plans to launch a “regulatory nursery,” described as enhanced oversight for newly authorized firms as they grow and develop. The regulatory nursery seeks to keep the FCA in close contact with a firm immediately post-authorisation. Regarding the already well-established Sandbox – a service that has been replicated in other jurisdictions, applications will soon be accepted on a rolling basis as opposed to fixed dates.
Of course, balance is always key. Regulators tend to be risk-averse, compensating for their public remit. But the FCA’s competition mandate, rare for a financial regulator, compels the agency to empower emerging firms seeking to challenge incumbents – this is a mission that entails a certain amount of risk as change can, and will, lead to errors and regulators are not immune to the vicissitudes of political sentiment. But rules that are too strict will stifle innovation, or worse, will chase innovators to jurisdictions that are more willing to embrace the ongoing, and inevitable, digital transformation in financial services – a keen risk in post-Brexit Britain.
