Consultation paper on draft innovation plan for financial services

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Consultation paper on draft innovation plan for financial services

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Background

The us government announced in its Productivity Plan 2015 that departments is going to be needed to make use of regulators to essay help create innovation plans by spring 2016. This announcement reflects one of the keys government aim to make sure the UK is giving support to the growth of start up business models and disruptive technologies, wearing down barriers to entry and productivity that is boosting. To work on this the UK’s regulation and enforcement frameworks must be agile adequate to respond flexibly to continuing developments in new technologies and business that is disruptive.

The objective of this consultation would be to put down ongoing and proposed work to foster a supportive regulatory framework for financial services which allows innovation to flourish.

The innovation plan covers the task associated with financial services regulators: Financial Conduct Authority (FCA ), Payment Systems Regulator (PSR ), Prudential Regulation Authority (PRA ) additionally the wider Bank of England.

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 come up with efficiency savings and minimize burdens on business

This consultation invites comment on the task of financial services regulators to support technology that is innovative disruptive business models. We might also prefer to understand where there could be gaps in regulatory approach with regards to innovation that is supporting.

Draft innovation arrange for financial services

2.1 Innovation and regulation

The government’s vision is for UK financial services to function as most competitive and innovative on the planet, delivering greater choice and value for consumers.

The government has recently taken significant action to reach this vision. This consists of:

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

2.2 How new technology is shaping financial services

An integral focus of innovation in financial services in the past few years is the growth of fintech – technology solutions which deliver financial services, often in an even more efficient and way that is customer-focused. For instance, technology has enabled:

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

The services that are financial is characterised by both new disruptive players and fintechs using the services of incumbents to produce 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 aspects of financial services – for example, payments, peer-to-peer lending, big data analytics and robo-advice – and the possibility of technology to transform financial services is substantial. 25% of most fintechs globally come in the retail payments industry 1 .

Great britain is the world-leader in fintech. An independent report from Ernst and Young (EY) published in February ranked great britain because 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 growing rap >2 .

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

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

The government’s priority would be to ensure that regulation is proportionate and promotes innovation, in the place of constrains or inhibits it. Indeed you can find probably be some areas of existing regulation, developed long before digital and advances that are technological that might now be acting as a barrier to innovation.

2.4 Financial Conduct Authority (FCA )

Project Innovate

It can help innovative firms gain access to fast and feedback that is frank the regulatory implications of the concepts, plans and choices. In addition seeks to tackle the structural conditions that impede the progress of innovators entering the market.

Section of Project Innovate could be the Innovation Hub which helps new and businesses that are establishedboth regulated and non-regulated) introduce innovative lending options and services towards the market. The Innovation Hub also identifies places where the framework that is regulatory to adjust to enable further innovation into the interests of consumers.

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

  • using the services of government on its plans to introduce anti-money laundering regulation for digital currency exchanges, to produce a environment that is supportive legitimate digital currency users and businesses, and produce a hostile environment for illicit users
  • making a statement taking a look at the extent associated with the dilemma of disproportionate de-risking, which denies businesses use of banking facilities, and exactly how the FCA might influence firms to take a far more proportionate approach
  • using informal steers on proposed innovations to enable more direct communication with firms

The united kingdom attracts fintech innovators from around the whole world – many choose to base themselves within the UK, not just to engage in a vibrant ecosystem that is local 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 just the right regulators when they check out start doing business in other regulatory jurisdictions
  • Stand prepared to help non-UK innovators interested in going into the UK market
  • Seeks co-operation agreements with key regulators. For example, the FCA recently signed a world-first Co-operation Agreement using 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 aid innovation and competition

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

It is designed to encourage greater use of behavioural and technology insights to deliver communications that help people make effective decisions about services and products. The FCA is dedicated to dealing with industry where an idea has strong potential to enhance consumer outcomes; the FCA may consider waiving or disclosure that is modifying where appropriate to facilitate this testing.

Additionally it is taking a look at amending its Handbook to get rid of a wide range of disclosure requirements which have not been as potent as initially envisaged in terms of providing appropriate information to consumers.

2.5 Payment Systems Regulator (PSR )

Usage of payment systems is an important driver of competition and innovation in the provision of payment services. Limited access is definitely considered a barrier to entry for new banks, e-money issuers as well as other payments institutions, with the concern that the pace of innovation in this certain area is too slow.

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

Competitive innovation

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

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

The findings that are interim both reviews were published in February and March prior to the final reports later this current year. Depending on its findings, the PSR may implement remedies or undertake further policy strive to support innovation that is competitive.

Collaborative innovation

Following engagement with the wider payments community, the Forum developed its initial set of priority areas. This includes:

  • Greater assurance and control for end users
  • Simplifying use of marketplace for payment services providers
  • An assessment of how industry could work to detect and minimize crime that is financial
  • An evaluation associated with costs and great things about account number portability