Perspectives

Regulating FinTech

Regulation’s central role in fostering innovation

At this year’s Innovate Finance Global Summit, the UK’s regulators were often pointed to as one of the key facilitators of London’s position as the global FinTech leader. Lawrence Wintermeyer CEO of Innovate Finance, said that the UK government has led the way with progressive policy, citing the Financial Conduct Authority’s (FCA) Project Innovate and regulatory ‘sandbox’, and the Bank of England’s FinTech accelerator, as examples of this.

Catch up on all things FinTech

At this year’s Innovate Finance Global Summit, the UK’s regulators were often pointed to as one of the key facilitators of London’s position as the global FinTech leader. Lawrence Wintermeyer CEO of Innovate Finance, said that the UK government has led the way with progressive policy, citing the Financial Conduct Authority’s (FCA) Project Innovate and regulatory ‘sandbox’, and the Bank of England’s FinTech accelerator, as examples of this.

The FCA’s Director of Strategy and Competition, Chris Woolard, said that regulation has a role to play in creating an environment for true competition and innovation to occur.

Jo Ann Barefoot, CEO of Barefoot Innovation, agreed, stating that for FinTechs and innovation to prosper, “regulation is arguably the key to getting things right”. Richard Teng, CEO of the Financial Services Regulatory Authority of Abu Dhabi Global Markets, discussed the importance of regulators to strike a balance between encouraging the growth of FinTechs and allowing innovation to flourish, while also ensuring financial stability. Jo Ann described this as regulators having to “walk the knife-edge”.

Eileen Burbidge, FinTech envoy to HM Treasury, believes that the two sides of this equation are not diametrically opposed, however. Her view is that part of financial stability is greater resiliency of the financial sector, and that this comes from greater competition and innovation.

Richard believes that regulators need to be active in the FinTech space to achieve this, by engaging with stakeholders and providing ‘sandbox’ environments to FinTechs in order to best identify and understand risks.

At times, regulation itself can be the driver of innovation within financial services. Wendy Jephson, co-founder of Sybenetix, gave the example of how the regulatory pressure to get data into the right shape for MiFiD II has led to financial services firms in countries outside of the regulation’s scope to follow suit.

The regulatory treatment of data will be key as the financial services industry is opened up, and competition and innovation within the sector speeds up. Ruth Wandhofer, Global Head of Regulation and Market Strategy at Citi, spoke of the need for a reattribution of liability in an open banking world and for a broader risk framework, incorporating all players handling customer data.

Chris raised the importance of having a blend of different talent and skills at the regulator, combining regulatory and technical knowledge, in order to properly examine innovation issues. This allows regulation to not only “stop bad things happening”, but also to implement legislation which does not “stop good things from happening”.

Professor Philip Treleaven of University College London discussed his belief that the burgeoning RegTech sector exemplifies this combination of skills and will help to create a regulatory environment which will enable FinTechs to thrive. Jo Ann called this the “co-creation of regulation”, in which the people needing to be regulated are also the people developing this technology to enable it to happen.

Bytaking a bold, pre-emptive and progressive approach, Chris believed regulation can enable innovative firms to enter the market, drive competition between incumbents, and, ultimately, create better outcomes for consumers.

You can keep up on all things #IFGS2017 by following Deloitte’s coverage on www.deloitte.co.uk/ifgs and @DeloitteUK_FS

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