Regulator's growing interest.

Fintech, by its very nature, causes Regulators some unease. 

As a disruptive force Fintech is blurring the functional boundary that exists between an individual and a financial intermediary. Distributed ledgers create new, decentralised financial infrastructures, permitting users to interact directly on a peer-to-peer basis. 

Additionally, the process of atomisation, unbundling and rebundling, where friction free information flows allow a reconfiguration of financial service value chains so that products and services can be broken up into distinct components each to be offered by different providers and recombined in different ways results in a conmplicated regulatory landscape. 

In such an environment what or who should be regulated?

What is a bank? When different entities are taking deposits, maintaining the account ledger, enabling borrowing or making credit decisions, what matters most and where should Regulators focus?

Similarly, should Regulators now even consider finance a separate sector when finance has become embedded in so many other activities?

Leaving the risks aside, Regulators also have a responsibility to actively promote financial innovation, efficiency and inclusion. Fintech has historically been very good at delivering these goals, but Regulators wrestle with how best to encourage and foster this in future.

UK regulatory approach.

As the UK has become one of the largest Fintech global hubs and understanding how important it is for the UK to maintain high standards and a resilient financial servies sector, the FCA has remained focussed on its role of applying consistently the requirement of regulatory authorisation. However it appreciates the need to develop and help businesses navigate the process of compliance, particularly for the innovative and new products arising from the development of Fintech companies. 

It has therefore created the Regulatory Sandbox, which provides an environment where firms with a minimum viable product can test this with real customers in a live market. The ovbious advantage of this for the firms is they have access to regulatory expertise and tools which can steer them to adapt or pivot their propositions as required. It also ensures these firms can bring their products or services to the market quicker given their knowledge of basic regulations. It helps the FCA understand better where the market is going and what and how to oversee this.

By April 2024 the Regulatory Sandbox had supported over 800 firms through this process.

Crypto and emerging tech

When it comes to looking at ways to regulate a sector that has developed to challenge the existing rules and institutions, again the FCA has taken a collaborative approach. Initially placing a blanket caveat emptor label on consumer dealings with crypto currencies and applying strict anti money laundering conditions, the FCA has been promoting growth in the sector by encouraging competition and developing expertise in the technological complex area by sponsoring, through an Emerging Technology Hub, input from Industry, academia and policy makers. The regulatory freedom afforded the UK post Brexit has greatly assisted this activity. The FCA is working with the UK Treasury on analysing areas where legislative change may be needed, particularly in areas such as distributed ledgers and tokenisation.