Fintech in London: Best Practices of Regulatory Support

London is named by Deloitte as the no.1 fintech hub in the world. Its regulatory support was cited as key ingredients for its success. Indeed, in an EY global survey, UK was identified as the most fintech-friendly jurisdiction. UK’s regulatory supports are often held up as global examples of best practices, making London the leading global fintech hub. In this article, we identified 5 important steps Financial Conduct Authority (FCA) and Competition and Markets Authority (CMA) have taken that contributes to the London’s success in fintech.

1. Statutory Objective of Promoting Competition

In the wake of the financial crisis, FCA was created in 2013 as one of the financial regulators, with promoting effective competition as one of their statutory objectives. FCA has identified supporting and driving innovation as crucial in facilitating healthy competition. As FCA has clearly articulated in their mission,

“An important aspect of our work to promote competition is supporting new and innovative players whose business models may test the boundaries of our current regulations.”

While there are other regulators in the world that have more resources and power, FCA was the first one who builds into its governance a mandate to promote innovation.

2. Regulatory Sandbox

In June 2016, FCA launched the world’s first regulatory “sandbox” for fintech startups at its London headquarters. A “sandbox” refers to a closed testing environment designed for experimenting safely with web or software projects. The Fintech Regulatory Sandbox enables fintech firms to develop compliant prototypes under the FCA’s supervision, helping them to reduce their regulatory burden.

Now, an increasing number of regions are joining the trend to create regulatory sandboxes to accelerate innovation in their financial sectors. These include Hong Kong, Singapore, Netherland, Canada and Australia.

3. FCA Innovation Hub support

FCA has also established a direct support unit to help fintech startups to demystify regulations. The FCA Innovation Hub helps innovative business to understand the regulatory framework, assists them in compliance and provides a dedicated contact for up to a year if a business is authorised.

The FCA innovation hub is also actively shaping London as a global fintech centre, establishing collaborations with the regulators in Australia, Hong Kong, Singapore, Canada and Japan. Through the Innovation Hub’s international engagement, FCA facilitates the entry of fintech firms to the UK, as well as the expansion of UK-based fintech firm to overseas market.

4. Open Banking (open API)

In a 2016 report on the UK’s retail banking market, the Competition and Markets Authority (CMA) points out that the established big banks do not have to compete hard enough for customers’ business, whereas the new challenger banks find it difficult to grow and access the market.

To change this situation, the CMA has shaken up of the UK banking industry with the introduction of “opening banking” in January 2018. CMA created a separate Open Banking Implementation Entity (OIBE), legally requiring the nine largest UK retail banks in the UK – Barclays, Lloyds, Santander, Danske, HSBC, RBS, BoI, Nationwide and AIBG – to open up their data via a set of secure application programming interfaces (API).

APIs allow different software applications to communicate with each other. For instance, recall the last time you ordered, tracked and paid for food delivery via your smartphone. Your food delivery app, banking app and mobile map are different apps, but APIs work in the background enabling them to exchange information, boosting the capability of each.

Now that traditional banks’ customer financial data is required to be shared with trusted third parties, this empowers fintech startups to provide users with better alternatives to manage their finances.

5. Payment System Regulator

As payment becomes a key area in fintech, the Payment Systems Regulator (PSR) was established as a subsidiary of FCA, regulating the £81 trillion payment systems industry in the UK. PSR is the world’s first economic regulator for payments, with “changing competition dynamics” as one of their key objectives. PSR ensures challenger banks and fintech startups can gain access to the payments systems on fair terms, and that the payments systems embrace innovation in the interests of consumers and businesses.

Join the Global Fintech Revolution

With London’s success as the leading global fintech centre, UK’s fintech regulations are now looked up to by the world as the best practices in the area. Regulators around the world are now reshaping their regulatory framework to catch up this fintech revolution. With the rise of financial technology, it is increasingly important to be well-equipped with knowledge about fintech and its latest trends. CFTE’s online fintech executive certificate is designed to help working professionals to gain an accessible and comprehensive overview of the landscape of financial technology. Lecturers and speakers of the programme include an Oxford fintech expert, Fintech CEOs, and global investors, providing a good blend of theoretical and practical insight into fintech. CFTE also offers an artificial intelligence in finance specialisation to help learners to gain deep inside into the application of AI in finance. Join CFTE now to embrace the fintech revolution. 

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Fintech in London: Best Practices of Regulatory Support

London is named by Deloitte as the no.1 fintech hub in the world. Its regulatory support was cited as key ingredients for its success. Indeed, in an EY global survey, UK was identified as the most fintech-friendly jurisdiction. UK’s regulatory supports are often held up as global examples of best practices, making London the leading global fintech hub. In this article, we identified 5 important steps Financial Conduct Authority (FCA) and Competition and Markets Authority (CMA) have taken that contributes to the London’s success in fintech.

1. Statutory Objective of Promoting Competition

In the wake of the financial crisis, FCA was created in 2013 as one of the financial regulators, with promoting effective competition as one of their statutory objectives. FCA has identified supporting and driving innovation as crucial in facilitating healthy competition. As FCA has clearly articulated in their mission,

“An important aspect of our work to promote competition is supporting new and innovative players whose business models may test the boundaries of our current regulations.”

While there are other regulators in the world that have more resources and power, FCA was the first one who builds into its governance a mandate to promote innovation.

2. Regulatory Sandbox

In June 2016, FCA launched the world’s first regulatory “sandbox” for fintech startups at its London headquarters. A “sandbox” refers to a closed testing environment designed for experimenting safely with web or software projects. The Fintech Regulatory Sandbox enables fintech firms to develop compliant prototypes under the FCA’s supervision, helping them to reduce their regulatory burden.

Now, an increasing number of regions are joining the trend to create regulatory sandboxes to accelerate innovation in their financial sectors. These include Hong Kong, Singapore, Netherland, Canada and Australia.

3. FCA Innovation Hub support

FCA has also established a direct support unit to help fintech startups to demystify regulations. The FCA Innovation Hub helps innovative business to understand the regulatory framework, assists them in compliance and provides a dedicated contact for up to a year if a business is authorised.

The FCA innovation hub is also actively shaping London as a global fintech centre, establishing collaborations with the regulators in Australia, Hong Kong, Singapore, Canada and Japan. Through the Innovation Hub’s international engagement, FCA facilitates the entry of fintech firms to the UK, as well as the expansion of UK-based fintech firm to overseas market.

4. Open Banking (open API)

In a 2016 report on the UK’s retail banking market, the Competition and Markets Authority (CMA) points out that the established big banks do not have to compete hard enough for customers’ business, whereas the new challenger banks find it difficult to grow and access the market.

To change this situation, the CMA has shaken up of the UK banking industry with the introduction of “opening banking” in January 2018. CMA created a separate Open Banking Implementation Entity (OIBE), legally requiring the nine largest UK retail banks in the UK – Barclays, Lloyds, Santander, Danske, HSBC, RBS, BoI, Nationwide and AIBG – to open up their data via a set of secure application programming interfaces (API).

APIs allow different software applications to communicate with each other. For instance, recall the last time you ordered, tracked and paid for food delivery via your smartphone. Your food delivery app, banking app and mobile map are different apps, but APIs work in the background enabling them to exchange information, boosting the capability of each.

Now that traditional banks’ customer financial data is required to be shared with trusted third parties, this empowers fintech startups to provide users with better alternatives to manage their finances.

5. Payment System Regulator

As payment becomes a key area in fintech, the Payment Systems Regulator (PSR) was established as a subsidiary of FCA, regulating the £81 trillion payment systems industry in the UK. PSR is the world’s first economic regulator for payments, with “changing competition dynamics” as one of their key objectives. PSR ensures challenger banks and fintech startups can gain access to the payments systems on fair terms, and that the payments systems embrace innovation in the interests of consumers and businesses.

Join the Global Fintech Revolution

With London’s success as the leading global fintech centre, UK’s fintech regulations are now looked up to by the world as the best practices in the area. Regulators around the world are now reshaping their regulatory framework to catch up this fintech revolution. With the rise of financial technology, it is increasingly important to be well-equipped with knowledge about fintech and its latest trends. CFTE’s online fintech executive certificate is designed to help working professionals to gain an accessible and comprehensive overview of the landscape of financial technology. Lecturers and speakers of the programme include an Oxford fintech expert, Fintech CEOs, and global investors, providing a good blend of theoretical and practical insight into fintech. CFTE also offers an artificial intelligence in finance specialisation to help learners to gain deep inside into the application of AI in finance. Join CFTE now to embrace the fintech revolution. 

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2019-01-23T12:33:19+00:00