Consultation paper on draft innovation policy for financial services

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Background

The us government announced in its Productivity Plan 2015 that departments will undoubtedly be expected to work with regulators to create innovation plans by spring 2016. This announcement reflects the key government aim to ensure the UK is supporting the development of new business models and disruptive technologies, breaking down barriers to entry and productivity that is boosting. To do this the UK’s regulation and enforcement frameworks needs to be agile adequate to respond flexibly to continuing developments in new technologies and disruptive business models.

The objective of this consultation is to lay out ongoing and proposed work to foster a supportive regulatory framework for financial services that allows innovation to flourish.

The innovation plan covers the job for the services that are financial: Financial Conduct Authority (FCA ), Payment Systems Regulator (PSR ), Prudential Regulation Authority (PRA ) in addition to wider Bank of England.

The innovation plan covers three issues that are key

• How new technology is shaping financial services
• How financial services regulators are adapting to new technologies and business that is disruptive to encourage growth
• How financial services regulators are better utilising new technologies to come up with efficiency savings and reduce burdens on business

This consultation invites touch upon the task of financial services regulators to support innovative technology and disruptive business models. We would also choose to understand where there could be gaps in regulatory approach in terms of innovation that is supporting.

Draft innovation plan for financial services

2.1 Innovation and regulation

The vision that is government’s for UK financial services to end up being the most competitive and innovative on earth, delivering greater choice and value for consumers.

The government has recently taken action that is significant reach this vision. This includes:

Creating the right environment that is regulatory particularly vital that you make certain that innovative firms can compete and grow. To this end, HM Treasury has firmly embedded competition and innovation objectives into the landscape that is regulatory financial services through the main regulators’ objectives and remits.

2.2 How technology that is new shaping financial services

A vital focus of innovation in financial services in modern times could be the development of fintech – technology solutions which deliver financial services, often in a far more efficient and way that is customer-focused. For example, technology has enabled:

• consumers to help make payments via their smartphones
• the matching of consumers and businesses with money to save and invest with those who need certainly to borrow
• personal insurance pricing in line with the characteristics and behaviours of individual consumers
• the introduction of new digital currencies

The financial services sector is characterised by both new disruptive players and fintechs working with incumbents to provide more innovative products and services through existing networks and infrastructure.

The sector that is fintech diverse: from small dynamic start-ups to more established players. Fintechs operate in a lot of aspects of financial services – as an example, payments, peer-to-peer lending, big data analytics and robo-advice – as well as the possibility of technology to transform financial services is substantial. 25% of all of the fintechs globally come in the payments that are retail 1 .

Great britain may be the world-leader in fintech. An independent report from Ernst and Young (EY) published in February ranked great britain as the leading fintech centre in the world – ahead of other leading hubs like Silicon Valley, New York and Hong Kong.

The UK’s fintech sector has been rap >2 that is growing .

2.3 How financial services regulators are adapting to new technologies and disruptive business models to encourage growth

This section outlines how each financial services regulator intends to support and promote innovation, facilitating the development of new technologies and business that is disruptive in financial services.

The government’s priority is to make certain that regulation is proportionate and promotes innovation, in the place of constrains or inhibits it. Indeed you can find likely to be some regions of existing regulation, developed long before digital and technological advances, which may now be acting as a barrier to innovation.

2.4 Financial Conduct Authority (FCA )

Project Innovate

It helps innovative firms gain access to fast and feedback that is frank the regulatory implications of the concepts, plans and choices. Moreover it seeks to tackle the structural problems that impede the progress of innovators entering the market.

Part of Project Innovate is the Innovation Hub which helps new and businesses that are establishedboth regulated and non-regulated) introduce innovative financial loans and services to the market. The Innovation Hub also identifies places where the framework that is regulatory to adapt to enable further innovation within the interests of consumers.

Up to now, Project Innovate has helped over 250 firms, 18 of which were authorised to undertake regulated activities. It provides an end-to-end experience for new entrants. Firms that receive initial support from the Innovation Hub have their applications for authorisation handled via a specialised Project Innovate authorisation process.

• working with government on its intends to introduce anti-money laundering regulation for digital currency exchanges, to offer a supportive environment for legitimate digital currency users and businesses, and create a hostile environment for illicit users
• making a statement taking a look at the extent for the problem of disproportionate de-risking, which denies businesses access to banking facilities, and how the FCA might influence firms to take an even more proportionate approach
• using informal steers on proposed innovations to enable more communication that is direct firms

The UK attracts fintech innovators from around the planet – many choose to base themselves within the UK, not just to be part of an exciting local ecosystem, but additionally simply because they begin to see the UK as a springboard to launch their businesses or products internationally and bolster their competitiveness.

The FCA as part of this work

• Helps put UK-based innovators in contact with the proper regulators if they aim to start business that is doing other regulatory jurisdictions
• Stand ready to help innovators that are non-UK in entering the UK market
• Seeks co-operation agreements with key regulators. For instance, the FCA recently signed a co-operation that is world-first with all the Australian regulator, ASIC, to facilitate the referral of innovative firms between their respective innovation hubs
• Promotes pro-innovation regulatory methods to standard-setters that are international

Other initiatives to support competition and innovation

The guidance aims to dispel misconceptions about regulators’ opposition to your encourage and cloud innovation in this area.

It is designed to encourage greater utilization of technology and behavioural insights to provide communications which help people make effective decisions about products and services. The FCA is committed to working together with industry where a concept has strong potential to enhance consumer outcomes; the FCA may consider waiving or modifying disclosure rules where appropriate to facilitate this testing.

It is also taking a look at amending its Handbook to get rid of a quantity of disclosure requirements that have not been as effective as initially envisaged in terms of providing information that is appropriate consumers.

2.5 Payment Systems Regulator (PSR )

Use of payment systems is an driver that is important of and innovation within the provision of payment services. Limited access has long how to do your homework without doing it been considered a barrier to entry for new banks, e-money issuers along with other payments institutions, because of the concern that the pace of innovation in this certain area is just too slow.

A objective that is main be effective proactively with small payments institutions and fintech firms to spot where in fact the barriers to innovation exist, which feeds in to the PSR ’s policy development and implementation.

Competitive innovation

This consists of publishing reports that are annual assess each scheme’s compliance, which include areas where the PSR expects to see improvements. The PSR will consider further action that is regulatory improvements are not made.

To ensure that the market is operating in a manner that supports competitive innovation, the PSR is conducting two market reviews:

The interim findings for both reviews were published in February and March ahead of the final reports later this season. According to its findings, the PSR may implement remedies or undertake further policy strive to support innovation that is competitive.

Collaborative innovation

Following engagement using the wider payments community, the Forum developed its initial collection of priority areas. This consists of:

• Greater assurance and control for end users
• Simplifying access to market for payment services providers
• An evaluation of how industry can perhaps work to detect and minimize financial crime
• An evaluation of this costs and great things about account number portability