Innovate Finance Policy, Government and Regulatory Update
May & June 2023 Roundup
The Innovate Finance policy team continues to juggle a host of live consultation papers from the regulators and government as we push ahead in supporting our members by advocating for the best regulatory and policy environment for FinTech with UK public officials. Clocking in at 24 consultation responses this calendar year (keeping up our ‘one-consultation-response-per-week’ streak), we wanted to pause and update you on some policy news in the FinTech ecosystem and what we’ve been up to since April.
TLDR; Why not join our All Members Policy Webinar on 29 June? This webinar, led by Adam Jackson, Director of Policy of Innovate Finance, will highlight the key policy areas that Innovate Finance has been working on and advocating for over the past year. We will then set the scene for a forward-look of the political, policy and regulatory landscape. Members can register using this link before 12pm, Wednesday 28th of June.
Looking at our key FinTech policy priorities in more detail:
Open Banking, Open Finance, Smart Data & AI
- Having published its recommendations for the next phase of Open Banking, JROC is moving ahead with delivering on the key themes and priorities it identified in its report. At the time of writing, the FCA and PSR are creating two working groups that will tackle two of the headline issues Innovate Finance was advocating for in our response to the Strategic Working Group sprints last November: non-sweeping VRPs and the design of the future entity. The working groups will run until Q3 when they are due to produce a final report to be submitted to JROC. Innovate Finance is pushing to ensure these working groups reflect the views of FinTechs which will be key in shaping the next wave of Open Banking innovation.
- As part of the AltFi Open Banking Forum 2023, our Director of Policy Adam Jackson featured on a panel unpacking the latest UK regulatory news in the open banking ecosystem. You can watch a recording of this webinar here.
- In the last month Adam has also attended two meetings of the Government’s new Smart Data Council, which is advising Business Minister Kevin Hollinrake MP and colleagues on how the UK can build out from open banking to extend open data benefits to other areas. This will inform Government plans for introducing smart data schemes once the powers to do so are agreed upon in the Data Protection and Digital Information Bill currently being considered by parliament.
- Innovate Finance has responded to the Department for Science, Innovation and Technology’s consultation on A pro-innovation approach to AI regulation. Our response is broadly supportive of the intended characteristics and principles of the government’s proposed framework for AI regulation presented in its white paper. This approach will support further development of FinTech use cases that will create solutions that address key priorities for the financial services sector and align with government and regulators’ aims. We will be hosting an in-person roundtable with DSIT officials from the Office for AI to further explore the Government’s proposals and their implications for the FinTech ecosystem.
Consumer protection and credit
- Innovate Finance has continued to engage with HM Treasury on proposals for new Buy Now Pay Later regulation, as officials prepare advice to Ministers on the next steps. We are making the case for measures that better support an online customer journey and good outcomes for consumers compared to a rigid application of the existing Consumer Credit Act requirements.
- Following our calls for reform of the Credit Information Market we have engaged with FCA to encourage them to widen their discussions on reform beyond the existing SCOR membership. We have been influential in shaping a new advisory group on reforming the governance of the Credit Information market, with membership including Innovate Finance and a number of our members as well as consumer bodies and an independent chair. We continue to advocate more fundamental reform of the credit information market to ensure better outcomes for consumers and business users alike, promoting innovation and widening market access for new providers.
- The Financial Ombudsman Service published a feedback statement following its consultation on temporary changes to outcome reporting in [its] business-specific complaints data. The FOS has taken on some of our feedback regarding the time limit for business offers to settle complaints where it has decided to extend the window for a business to offer to settle a complaint from 14 days to 21 days; however, the business must inform the FOS within 14 days that an offer is coming.
Economic crime
- We continue to engage closely with the Payment Systems Regulator (PSR) on how to ensure appropriate and effective reporting on fraud, support cross-sectoral data sharing, and ensure a careful and considered roll-out of the mandatory reimbursement liability regime.
- In June, we hosted a roundtable with the PSR to unpack concerns and solutions in relation to the Measure One metrics reporting. Our CEO Janine Hirt met PSR CEO Chirs Hemsley recently and our Director of Policy, Adam Jackson, engaged with PSR’s senior executives at a CEO roundtable which unveiled the regulator’s Policy Statement on mandatory reimbursement for APP fraud. There were no real surprises in the Policy Statement and accompanying cost-benefit analysis, as the PSR’s position has been heavily trailed. Still, it was disappointing to note that the PSR has downplayed the impacts on competition and innovation and failed to pick up on our estimates that mandatory reimbursement could wipe out (at a minimum) 10% of firms’ revenues. Much is still uncertain and the PSR will be consulting on key aspects of the regime and sharing more guidance on how to interpret gross negligence over the coming months.
- Innovate Finance will be ramping up engagement with the PSR, Pay.UK and other key stakeholders to shape thinking around forthcoming scheme rules and wider efforts on data sharing and APP fraud prevention.
Digital assets, blockchain and crypto
- Innovate Finance responded to HM Treasury consultation on the future UK regulatory regime for cryptoassets (full response here). Our response is supportive of HMT’s approach which has taken as a starting point how existing rules for similar activities can be applied. This is the approach Innovate Finance has lobbied several successive Treasury ministers for. We welcome the declared aim of a proportionate and innovation-friendly approach which we think sends a strong signal that the UK Government is seeking to develop, as quickly as possible, a proportionate regime that provides protection for consumers, building the trust that supports innovation and adoption, and in ways that supports a competitive and vibrant cryptoassets and digital asset sector.
- In May, the Treasury Select Committee published a report following its enquiry on cryptoassets which concluded that regulating the trading of unbacked cryptoassets will create a ‘halo’ effect that could lead consumers to conclude that it is safer than it is and recommended that consumer cryptocurrency trading be regulated as gambling. In a statement (which you can read here in full), we highlighted that this ‘halo’ effect argument against regulation risks leaving consumers and markets with no guard rails or protections.
- We are currently finalising with members our response to the Bank of England and HM Treasury consultation on the digital pound, which is broadly supportive. As part of our engagement on the digital pound, the Bank of England hosted a group of CEOs from Innovate Finance’s membership for a roundtable discussion with Sir Jon Cunliffe which explored the potential for a digital pound to support innovation and what would need to be true for innovative commercial use cases to flourish.
- Launching our programme for the coming year as we continue our Secretariat role for the All-Party Parliamentary Group on Financial Technology was our ‘Crypto 101: Navigating the Fundamentals of Digital Finance’ event at 1 Parliament Street. Many thanks to our members at Oasis.app, Ripple, Block, Coincover and Shearman & Sterling who offered their expertise at this session. You can see our wrap-up of the event here.
FinTech as a Force for Good
- Following the launch of our FinTech: Helping with the Cost of Living report in February, we were delighted to continue our collaboration with our partners at EY to host a cost of living hackathon. Four teams of volunteers from eight companies and Citizens Advice dedicated their time and passion to solve two challenges. You can read a full summary of the event here.
- Innovate Finance is delighted to officially join the Bankers for Net Zero initiative and support Project Perseus to bring the voice of our members to the table on how to unlock FinTech solutions that enable banks and small firms to measure and report on emissions and support start-ups and scale ups who need to measure and reduce their own emissions. You can see our official statement here. Firms interested in providing finance to SMEs for Net Zero transition should consider taking part - further details here
Challenger banks
- Innovate Finance continues to advocate for our challenger bank members through a series of consultations, including:
- HM Treasury’s Call for Evidence on “Aligning the ring-fencing and resolution regimes” (read here). Our response is supportive of efforts to simplify and streamline overlapping regulatory regimes where this does not dilute consumer protection (such as by exposing consumers to unnecessary or inappropriate levels of risk), financial stability and market integrity. We are also supportive of HMT’s proposed criteria for assessing options for better aligning these regimes, in particular ‘impact on UK competitiveness and growth’ and ‘impact on competition’.
- PRA’s Consultation (CP4/23) on “The Strong and Simple Framework: Liquidity and Disclosure requirements for Simpler-regime Firms” (read here). While broadly supportive of the proposals, we noted that the PRA’s approach to piecemeal consultation on the Strong and Simple framework makes it hard for challenger banks to take a holistic view of the regime, and understand the consequences of the various components and their dependencies and interactions. This approach has added unnecessary uncertainty for firms, making longer-term planning (for capital, hiring staff, and investment in processes and systems, for example) more difficult.
- PRA’s Consultation (CP5/23) on “Remuneration: Enhancing proportionality for small firms” (read here). Our response is supportive of the outlined proposals which our members believe will facilitate competitiveness and growth by reducing onerous regulatory burdens and implementation costs on small firms, such as the technical requirements on deferral. Our members agreed that the approach would permit greater flexibility for smaller firms in the earlier stages of development, and help them compete in attracting new staff with technology firms and other firms which are not subject to the remuneration requirements of the Capital Requirements Directive V. We also shared this submission with the FCA in response to their consultation (CP23/11) on remuneration.
- We are also working with our partner Hogan Lovells and our members to produce a short position paper, which outlines: the benefits that challenger banks deliver to consumers, businesses and the wider UK economic growth; and the key legal and regulatory hurdles that are hindering safe, responsible growth to effectively challenge incumbents alongside our proposed solutions. We will be using this paper as an engagement tool with regulators, government, shadow government and other key stakeholders.
And… the Senior Managers and Certification Regime (SM&CR)
- In our joint response to HM Treasury Call for Evidence and PRA/FCA DP1/23 Review of the SM&CR (read here) we have advocated for three key areas for the government and regulators to consider for the future regime: proportionality to ensure requirements evolve in line with a company’s own expansion; transparency and streamlining of Senior Manager approvals; and consistency across UK regulatory regimes to ensure coherence for firms expected to implement new rules.
Countdown to the General Election
- We were delighted to be joined by Tulip Siddiq at a roundtable discussion with the FinTech Strategy Group of FinTech founders and CEOs. We discussed the key issues for the FinTech ecosystem and the group began brainstorming the key asks for a ‘FinTech Manifesto’ ahead of the next UK general election.
Got views? Get in touch
We’re keen to hear from our members and wider network about these issues.
If you have views or concerns, please free to email us with your thoughts at policy@innovatefinance.com
Innovate Finance policy team
Adam Jackson - Director of Policy
Rachel Waggott - Head of Regulatory Affairs
Mike Carter - Head of Platform Lending and Investment
David Abadir - Policy Associate
Christopher Foo - Policy Associate
