The UK Government announced in its Productivity Plan 2015 that departments will be required to work with regulators to publish innovation plans to ensure the UK is supporting the development of new business models and disruptive technologies, breaking down barriers to entry, and boosting productivity.
HM Treasury is now seeking views on how the work of financial services regulators supports innovative technology and new business models. The purpose of the consultation is to set out on-going and proposed work to foster a supportive regulatory framework for financial services that allows innovation to flourish.
The innovation plan covers the work of the financial services regulators:
- Financial Conduct Authority (FCA)
- Payment Systems Regulator (PSR)
- Prudential Regulation Authority (PRA) and
- The Bank of England itself
The innovation plan covers three key issues:
- How new technology is shaping financial services
- How financial services regulators are adapting to new technologies and disruptive business models to encourage growth
- How financial services regulators are better utilising new technologies to generate efficiency savings and reduce burdens on business
Already, the UK financial services sector is characterised by both new disruptive players and FinTechs working with incumbents to deliver more innovative products and services through existing networks and infrastructure.
The FinTech sector is diverse: from small dynamic start-ups to more established players. FinTechs operate in many areas of financial services – for example, payments, peer-to-peer lending, big data analytics and robo-advice, and the potential for technology to transform financial services is substantial.
In 2015, FinTech investment in the UK and Ireland grew 28% to £524m. As it is, the UK FinTech sector contributed £20bn to GDP in 2015 and employed 61,000 people.
To help encourage and support innovation in financial services, the FCA launched Project Innovate in October 2014. It’s Innovation Hub helps new and established businesses (both regulated and non-regulated) introduce innovative financial products and services to the market.
The Innovation Hub also identifies areas where the regulatory framework needs to adapt to enable further innovation in the interests of consumers.
To date, Project Innovate has helped over 250 firms, 18 of which have been authorised to undertake regulated activities.
Going forward, the FCA plans to proactively engage with large incumbents to ensure their potential for consumer-friendly innovation is not being held back by regulatory considerations. In particular, it will seek out opportunities to pilot research on new initiatives.
The Government’s priority is to ensure that regulation is proportionate and promotes innovation, rather than constrains or inhibits it.
Equally, it recognises that firms have to meet higher regulatory standards and greater reporting requirements following the financial crisis, as such new technologies that help firms better manage these regulatory requirements and reduce compliance costs (so-called RegTech) are good for effective competition and innovation.
The consultation is open to all interested parties, in particular both regulated and unregulated firms and innovators in the financial services sector. The specific questions being asked are:
- Does the UK’s regulatory environment for financial services effectively support innovation?
- Do financial services regulators understand innovation in financial services and potential areas where new technologies and disruptive business models might emerge in the sector?
- Are there any gaps in approach or areas where financial services regulators should be doing more to support innovative technology and disruptive business models in financial services?
- Is there more that financial services regulators could do to better utilise new technologies to deliver their own work more effectively?
This consultation will run from 22 April to 6 May 2016. Responses should be sent by email to Innovation plan consultation
The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions, position, or policy of Berkeley Research Group, LLC or its other employees and affiliates.