Financial Conduct Authority ("FCA") Executive Director for Strategy and Competition Christopher Woolard highlighted FCA efforts to promote innovation in the financial services industry.
In a speech before the Innovate Finance Global Summit in London, Mr. Woolard described some of the FCA's notable accomplishments in the five years since the launch of its Innovation Division. Citing a new report, Mr. Woolard stated that firms have benefited from the "regulatory certainty" provided through Sandbox testing (i.e., testing new tools or activities under regulatory oversight without full availability to the market). According to the report, of the 47 firms who completed Sandbox testing, 80 percent of them are now operating in the market. The Innovation Division is now attempting to expand its model to operate on a global scale through the Global Financial Innovation Network, which is a group of international regulators working to help firms test cross-border FinTech innovations.
Mr. Woolard also noted that the Innovation Division is attempting to promote innovations that benefit "public good" through (i) a "Green FinTech Challenge" to encourage innovation and growth that is environmentally friendly and (ii) a second "TechSprint" summit on using technology to combat financial crime.
Commentary / Michael Sholem
The FCA's "Innovate" initiative has undoubtedly been a high-profile success over the past five years, with many regulators across the world adopting the "Sandbox" concept for FinTech market entrants. That said, the FCA faces some challenges in maintaining the UK's reputation for a FinTech-friendly environment. First, the prospect of Brexit with the potential loss of passporting for payment services firms and investment firms, together with possible restrictions on the employment of EU citizens, means that other jurisdictions in Europe may be able to narrow the gap with the UK. Second, the provision of an accelerated licensing regime for FinTech firms and the encouragement of AI-driven solutions for investment advice, regulatory reporting and other services can be seen as somewhat at odds with the increasing focus of the UK regulator on senior management accountability and extensive systems and controls. Still, it is encouraging to see that the leadership of the FCA is keen to press on and expand the work of the Innovation Division, especially as the FCA has proved over the last five years that it is willing to engage constructively with both the financial industry and new market entrants to ensure that the UK regulatory regime adapts to technological change.
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