In a speech given to bankers at the BBA FinTech Banking Conference last week, the Financial Conduct Authority (FCA) confirmed its commitment to innovation and FinTech.
Christopher Woolard, Director of Strategy and Competition, told attendees that:
- ‘Project Innovate’ has been very successful, with 300 firms assisted so far
- Interest in the Regulatory Sandbox has been high, with 69 applications to date, 24 of which have been accepted
- The Advice Unit for banks investing in automation has seen 19 applications for support, nine of which have been successful
- The Authority plans to ‘encourage innovation and adoption in technology’ through its RegTech work, which looks at how regulation can be approached in ‘new and creative ways’
Banking technology adoption is increasing
Woolard cited research by the BBA which says that nearly 14 million banking apps were downloaded in 2015, a 25% rise on 2014.
The FCA, he said, has responded to this appetite for new solutions by seeking to ‘use our unique position to harness the power of innovation for the good of consumers and markets’.
How is the banking sector approaching innovation?
Woolard said that there are several ways that technology can be used to improve market integrity, consumer protection and competition; ‘Most dramatically a new challenger coming in and rapidly taking market share. Alternatively, multiple small disruptors pushing larger firms to change their business models.’
He said that the Authority also recognises ‘the developing trend within the banking industry towards innovation and collaboration’.
This means not just new start-ups, but new innovative services from existing firms. Sometimes this might come about through collaboration between a start-up and an incumbent firm.
Update on Project Innovate
- The aim of the initiative, which kicked off in 2014, is to support any firm that wants to explore new approaches.
- This might mean giving them help in navigating the regulatory system.
- It might mean working with them to reduce the barriers to innovation – with-out compromising standards of regulation and consumer protection.
Update on the Sandbox
- The Sandbox – as Perivan Technology outline in this blog on its launch – aims to give firms a ‘safe space’ to test and trial new products and services.
- The 24 applications being progressed currently come from a wide range of sectors including retail banking, insurance, advice and profiling and IPO.
Update on the Advice Unit
- The Unit was set up as a way of supporting firms in developing automated models to deliver lower-cost advice.
- Of the nine successful applicants, eight are established financial service firms that want to bring automated advice to the market at scale.
- Lessons learned will be shared on the FCA’s website, to give greater clarity to the industry on how to take an automated advice model forward.
The last part of Woolard’s speech was devoted to regulatory technology – RegTech.
He said that the FCA recognises the burden of compliance, citing the ‘billions of pounds and large numbers of staff…dedicated to the business of regulation.’
He said that ‘we must ask ourselves if there is an easier, more efficient way for firms to fulfil some of their regulatory responsibilities’.
Because RegTech can potentially free up large sums of operational and capital expenditure currently spent on compliance, it could increase firms’ capacity to innovate.
In April the Authority held it’s first ‘TechSprint’ – more commonly known as a ‘hackathon’. The two-day event focused on increasing consumers’ access to financial services. It saw a cross-section of financial services providers and tech companies explore how to develop prototype solutions to overcome barriers to access.
The second TechSprint is planned for later this year, and will focus on the theme of ‘unlocking regulatory reporting’.
Innovate – but don’t forget compliance
In conclusion, Woolard reiterated the FCA’s commitment to innovation and the projects it has put in place to explore and exploit FinTech and other new approaches.
For financial services firms, the message is clear. Innovation is to be embraced – but in a way that meets regulatory requirements. It’s encouraging that the FCA is leading the way with projects that encourage innovation in UK financial services.
For firms – whether they want to innovate in a major or more low-key way – making sure any approaches are in line with regulatory requirements is vital. Whether you are adopting new approaches in terms of delivery, access or financial promotions, keeping them compliant is essential.
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