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FCA Speech: Levelling the playing field – innovation in the service of consumers and the market

FCA | Nikhil Rathi | Apr 20, 2021

Nikhil Rathi CEO FCA - FCA Speech: Levelling the playing field – innovation in the service of consumers and the marketHighlights

  • Success in financial innovation has been enabled by regulatory open-mindedness.
  • Support for innovation has been matched by action to protect consumers and markets.
  • The FCA will be taking forward the Kalifa Review’s recommendation for a Scalebox, including the creation of a regulatory nursery.
  • Online search and social media firms need to take greater responsibility for their role in connecting consumers with these investment offers.
  • We also need to make sure that our internal processes allow for quick action, which is why we are currently reviewing how our Regulatory Decisions Committee functions.

Thanks to many of you participating in this conference, UK fintech has grown successfully in recent years, at the forefront of global innovation.

Its revenue rose to £11bn in 2019 – almost doubling in only four years and accounting for almost 10% of the global total. Already this year, we have seen over $1bn worth of investment into UK fintech.

This revenue growth and investment has been supported by and, in turn encouraged, changes in consumer behaviour.

Seven in ten of us now use the services of at least one fintech company.

More consumers are adopting innovative ways of accessing financial services in the UK than in equivalent markets, for example using finance aggregator services to make it easier to save and manage outgoings.

This success in financial innovation has been enabled by regulatory open-mindedness; a trait not always associated with regulators.

So, why has the FCA taken this lead?

First, Parliament has given us a duty to promote competition.

The challenge for us is the balancing act required by the rider within our competition objective – in the interests of consumers.

The choice created by competitive markets is, in itself, not a social or economic good. It only becomes one when it delivers better or cheaper products, an improved or more tailored service, and pushes incumbents to fight harder to attract and keep their customers. Crucially, consumers must be armed with information they can readily understand to help them make the right choice for them.

See:  FCA and City of London’s Digital Sandbox Pilot – Presentations and Use Cases

In supporting innovation to deliver more competitive markets, another of our objectives is held in balance – that of consumer protection.

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. 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.

As a result, there are products now on the market offering new ways to pay, insure and access advice. And to support the wider market, we have tested regtech solutions, for example how to manage the compliance in the issuance of digital assets or deal with anti-money laundering requirements.

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This support for innovation has been matched by action to protect consumers and markets, where we believe the consumer or market benefits are few or unclear.

For example, while we can see how useful distributed ledger technology can be - indeed a number of products drawing on it have been through the sandbox - we have made clear our concerns about certain investments in cryptoassets, which rely on DLT.

Last year, we banned the sale of crypto derivatives to retail consumers because the majority lost money, despite significant price increases in the underlying assets.

We also warned that direct investment in cryptoassets is high risk, with few regulatory protections.

We have been blunt. If you invest, you should be able to afford to lose it all.

Continued support for innovation

In last month’s letter of recommendations for the FCA from the Chancellor, the FCA was asked to

“secure the right balance between a financial sector that is globally competitive, works for consumers, and is secure over the long-term.”

As part of this careful balancing act, the Chancellor announced the FCA will be taking forward the Kalifa Review’s recommendation for a Scalebox.

Here, we are drawing on lessons from Project Innovate, which has shown that once authorised, firms continue to need higher levels of support from the regulator and, often, enhanced oversight.

See:  FCA: Regulating innovation: a global enterprise

By autumn, we will develop plans to create a regulatory ‘nursery’.

This will create a period of enhanced oversight as those newly authorised firms develop and grow used to their regulatory status.

Currently, firms gain regulatory status and are treated in the same way as a firm with a long track record. The regulatory nursery will keep us in close contact with firms immediately post-authorisation so we can provide support and, where we need to, intervene earlier to steer firms in the right direction.

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NCFA Jan 2018 resize - FCA Speech: Levelling the playing field – innovation in the service of consumers and the market The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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