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 supposed to be expected to make use of regulators to create innovation plans by spring 2016. This announcement reflects the key government make an effort to ensure the UK is supporting the development of home based business models and disruptive technologies, wearing down barriers to entry and boosting productivity. To do 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 purpose of this consultation is to put down ongoing and proposed work to foster a supportive regulatory framework for financial services that enables innovation to flourish.

The innovation plan covers the task regarding the services that are financial: Financial Conduct Authority (FCA ), Payment Systems Regulator (PSR ), Prudential Regulation Authority (PRA ) and also the wider Bank of England.

The innovation plan covers three issues that are key

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

This consultation invites comment on the task of financial services regulators to guide innovative technology and disruptive business models. We would also love to understand where there can be gaps in regulatory approach in terms of supporting innovation.

Draft innovation arrange for financial services

2.1 Innovation and regulation

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

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

Creating the right environment that is regulatory particularly important to make sure innovative firms can compete and grow. For this end, HM Treasury has firmly embedded competition and innovation objectives within the regulatory landscape for financial services through the key regulators’ objectives and remits.

2.2 How technology that is new shaping financial services

An integral focus of innovation in financial services in the last few years could be the development of fintech – technology solutions which deliver financial services, often in a far more efficient and customer-focused way. For example, technology has enabled:

• consumers which will make payments via their smartphones
• the matching of consumers and businesses with money to save lots of and invest with those that have to borrow
• personal insurance pricing on the basis of the characteristics and behaviours of individual consumers
• the development of new digital currencies

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

The fintech sector is diverse: from small dynamic start-ups to more established players. Fintechs operate in lots of regions of financial services – for instance, payments, peer-to-peer lending, big data analytics and robo-advice – and also the potential for technology to transform financial services is substantial. 25% of most fintechs globally have been in the payments that are retail 1 )

The UK is the world-leader in fintech. An independent report from Ernst and Young (EY) published in February ranked great britain as the leading fintech centre on the planet – 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 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 business that is disruptive in financial services.

The government’s priority is to make sure that regulation is proportionate and promotes innovation, instead of constrains or inhibits it. Indeed you will find likely to be some aspects of existing regulation, developed long before digital and advances that are technological which could 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 issues that are structural impede the progress of innovators going into the market.

Part of Project Innovate is the Innovation Hub which helps new and established businesses help me with my homework (both regulated and non-regulated) introduce innovative financial products and services to the market. The Innovation Hub also identifies places 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 were authorised to undertake regulated activities. It gives 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.

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

The UK attracts fintech innovators from around the world – many decide to base themselves within the UK, not just to engage in a captivating local ecosystem, but additionally simply because they 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 best regulators once they turn to start business that is doing other regulatory jurisdictions
• Stand ready to help non-UK innovators interested in going into the UK market
• Seeks co-operation agreements with key regulators. As an 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 guide innovation and competition

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

It aims to encourage greater utilization of technology and behavioural insights to supply communications that help people make effective decisions about services and products. The FCA is committed to working with industry where a notion 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 remove a wide range of disclosure requirements that have not been as potent as initially envisaged with regards to providing appropriate information to consumers.

2.5 Payment Systems Regulator (PSR )

Use of payment systems is an driver that is important of and innovation in the provision of payment services. Limited access has long been considered a barrier to entry for brand new banks, e-money issuers along with other payments institutions, with the concern that the pace of innovation in this area is simply too slow.

A main objective is to work 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 includes places where the PSR expects to see improvements. The PSR will consider further regulatory action if improvements are not made.

The PSR is conducting two market reviews to ensure that the market is operating in a way that supports competitive innovation

The findings that are interim both reviews were published in February and March prior to the final reports later in 2010. According to its findings, the PSR may implement remedies or undertake further policy work 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 control and assurance for end users
• Simplifying access to market for payment services providers
• An assessment of how industry could work to detect and lower crime that is financial
• An assessment associated with costs and benefits of account number portability