Having left the EU, the UK is developing its own approach to financial services regulation. This comes at a time when technology is transforming financial services – and regulatory supervision – at an ever increasing pace.
Over the last decade the UK has established itself as a global centre for innovation in financial services – one of the best places in the world to start, build and scale a FinTech. We now have an opportunity to develop the UK regulatory system, and the UK regulators, to embrace technology in ways that improve our global competitiveness and deliver better outcomes for consumers.
Innovate Finance has identified three guiding principles for building a regulatory system that continues to foster innovation and protect consumers, building a forward looking system that provides confidence for innovators, investors and consumers. These draw upon our discussion with Innovate Finance members and our more detailed responses to the Government’s proposals for a Future Regulatory Framework and the FCA’s consultation on an outcome-focused Consumer Duty.
Within these three principles we have set out priority actions for regulators and government to take:
1. Fit for purpose: updating existing rules
2. Fit for the future: Enabling innovation
3. Innovative, agile regulators
Bring new technology and services into the regulatory perimeter, with proportionate regulation that protects consumers and supports innovation including ‘Buy Now, Pay Later’ and crypto assets.
Introduce a Consumer Data right to create economy-wide open data: unlocking new Fintech solutions including NetZero, financial inclusion and SME lending. Support this with legislation for Digital ID.
Reform regulators’ capability, capacity and culture to underpin and ensure effective delivery of their new competitiveness objective. This should include the introduction of statutory international benchmarking reports, capability reviews and industry interchange.
Reform out of date legislation that provides poor consumer outcomes and/or fails to reflect technology: including the Consumer Credit Act. The new outcome-based FCA Consumer Duty should be accompanied by removing ‘tick box’ regulations that provide worse outcomes for consumers. There should also be a review of regulation to remove barriers to Net Zero climate change solutions.
Digital currencies and blockchain-based infrastructure: Introduce a regulatory system for asset backed stablecoins and a Central Bank Digital Currency to establish the UK as the global centre of the next phase of payment technology. Design and introduce a framework to advance blockchain-based financial markets infrastructure.
A consistent approach – across all regulators including the Bank of England and Payment Systems Regulator. The new Future Regulatory Framework (including a competitiveness objective) should be extended to all financial service regulators and to ‘quasi regulators’ like the Financial Ombusdman Service (FOS). Action should be taken to ensure FOS and the FCA apply the same interpretation of rules.
Reform capital requirements to remove MREL burden on smaller new banks and revise SME capital ratios – to create a level playing field for challengers, remove disincentives for global investors, and unlock lending.
Enable RegTech solutions. Launch machine readable regulatory rule books. Enable machine readable ESG data. Introduce a RegTech test: require all new regulations to be designed in ways that best enable SupervisoryTech and RegTech solutions.
Support start-ups and scale ups: extend the FCA’s scalebox to the PRA; introduce a start-up and scale-up test as part of Cost Benefit Analysis of new regulation.
