Consultation paper on draft innovation arrange for financial services

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The us government announced in its Productivity Plan 2015 that departments will likely to be needed to make use of regulators to publish innovation plans by spring 2016. This announcement reflects one of the keys government try to ensure the UK is giving support to the growth of new business models and disruptive technologies, wearing down barriers to entry and boosting productivity. To do this the UK’s regulation and enforcement frameworks must be agile enough to respond flexibly to continuing developments in new technologies and business that is disruptive.

The purpose of this consultation is always to set out ongoing and proposed work to foster a supportive regulatory framework for financial services that enables innovation to flourish.

The innovation plan covers the work for the services that are financial: Financial Conduct Authority (FCA ), Payment Systems Regulator (PSR ), Prudential Regulation Authority (PRA ) in addition to wider Bank of England.

The innovation plan covers three issues that are key

  • How new technology is shaping financial services
  • How financial services regulators are adapting to new technologies and disruptive business models to encourage growth
  • How services that are financial are better utilising new technologies to come up with efficiency savings and reduce burdens on business

This consultation invites touch upon the work of financial services regulators to guide technology that is innovative disruptive business models. We would also prefer to understand where there could be gaps in regulatory approach in terms of innovation that is supporting.

Draft innovation policy for financial services

2.1 Innovation and regulation

The government’s vision is for UK financial services to end up being the most competitive and innovative in the field, delivering greater choice and value for consumers.

The us government has already taken significant action to reach this vision. This can include:

Creating the right regulatory environment is particularly important to make sure innovative firms can compete and grow. To this end, HM Treasury has firmly embedded competition and innovation objectives in the regulatory landscape for financial services through the primary regulators’ objectives and remits.

2.2 How technology that is new shaping financial services

A key focus of innovation in financial services in recent years could be the development of fintech – technology solutions which deliver financial services, often in a far more efficient and customer-focused way. For example, technology has enabled:

  • consumers to help make payments via their smartphones
  • the matching of consumers and businesses with money to truly save and invest with those who have to borrow
  • personal insurance pricing in line with the characteristics and behaviours of individual consumers
  • the introduction of new currencies that are digital

The services that are financial is characterised by both new disruptive players and fintechs using the services of incumbents to supply more innovative services and products through existing networks and infrastructure.

The fintech sector is diverse: from small dynamic start-ups to more established players. Fintechs operate in a lot of areas of financial services – for instance, payments, peer-to-peer lending, big data analytics and robo-advice – while the prospect of technology to change financial services is substantial. 25% of all of the fintechs globally have been in the payments that are retail 1 .

The UK is the world-leader in fintech. An independent report from Ernst and Young (EY) published in February ranked the UK because the leading fintech centre on the planet – ahead of other leading hubs like Silicon Valley, New York and Hong Kong.

The UK’s fintech sector has been rap >2 that is growing .

2.3 How financial services regulators are adapting to new technologies and business that is disruptive to encourage growth

This section outlines how each financial services regulator intends to support and promote innovation, facilitating the development of new technologies and business that is disruptive in financial services.

The government’s priority is always to ensure that regulation is proportionate and promotes innovation, in place of constrains or inhibits it. Indeed you can find likely to be some regions of existing regulation, developed well before digital and advances that are technological which could now be acting as a barrier to innovation.

2.4 Financial Conduct Authority (FCA )

Project Innovate

It helps innovative firms gain access to fast and frank feedback on the regulatory implications of these concepts, plans and choices. Moreover it seeks to tackle the structural problems that impede the progress of innovators going into the market.

Element of Project Innovate could be the Innovation Hub that will help new and established businesses (both regulated and non-regulated) introduce innovative financial loans and services into the market. The Innovation Hub also identifies areas where the framework that is regulatory to adapt to enable further innovation in the interests of consumers.

To date, Project Innovate has helped over 250 firms, 18 of that have been authorised to undertake regulated activities. It gives an end-to-end experience for new entrants. Firms that receive initial support from the Innovation Hub have their applications for authorisation handled via a specialised Project Innovate authorisation process.

  • working together with government on its plans to introduce anti-money laundering regulation for digital currency exchanges, to present a supportive environment for legitimate digital currency users and businesses, and produce a hostile environment for illicit users
  • making a statement looking at the extent regarding the dilemma of disproportionate de-risking, which denies businesses access to banking facilities, and just how the FCA might influence firms to take a more proportionate approach
  • using informal steers on proposed innovations to allow more communication that is direct firms

Great britain attracts fintech innovators from about the entire world – many decide to base themselves in the UK, not only to be part of a captivating local ecosystem, but also because they look at UK as a springboard to launch their businesses or products internationally and bolster their competitiveness.

The FCA as part of this work

  • Helps put UK-based innovators in touch with the right regulators once they turn to start doing business in other regulatory jurisdictions
  • Stand ready to help innovators that are non-UK in entering the UK market
  • Seeks co-operation agreements with key regulators. As an example, the FCA recently signed a world-first Co-operation Agreement with the Australian regulator, ASIC, to facilitate the referral of innovative firms between their respective innovation hubs
  • Promotes pro-innovation regulatory approaches to international standard-setters

Other initiatives to aid innovation and competition

The guidance is designed to dispel misconceptions about regulators’ opposition to your encourage and cloud innovation in this region.

It aims to encourage greater use of behavioural and technology insights to supply communications which help people make effective decisions about services and products. The FCA is invested in using the services of industry where a thought has strong potential to boost consumer outcomes; the FCA may consider waiving or modifying disclosure rules where appropriate to facilitate this testing.

Additionally it is looking at amending its Handbook to remove an amount of disclosure requirements which have not been as effective as initially envisaged in terms of providing information that is appropriate consumers.

2.5 Payment Systems Regulator (PSR )

Access to payment systems is an driver that is important of and innovation when you look at the provision of payment services. Limited access is definitely considered a barrier to entry for brand new banks, e-money issuers as well as other payments institutions, using the concern that the pace of innovation in this certain area is simply too slow.

A objective that is main to function proactively with small payments institutions and fintech firms to recognize where in fact the barriers to innovation exist, which feeds into the PSR ’s policy development and implementation.

Competitive innovation

This includes publishing annual reports to assess each scheme’s compliance, which includes areas where the PSR expects to see improvements. The PSR will consider further regulatory action if improvements are not made.

The PSR is conducting two market reviews to ensure that the market is operating in a way that supports competitive innovation

The findings that are interim both reviews were published in February and March ahead of the final reports later this season. Dependent on its findings, the PSR may implement remedies or undertake further policy strive to support innovation that is competitive.

Collaborative innovation

Following engagement aided by the wider payments community, the Forum developed its initial collection of priority areas. This can include:

  • Greater assurance and control for end users
  • Simplifying usage of market for payment services providers
  • An evaluation of how industry can perhaps work to detect and reduce financial crime
  • An evaluation associated with costs and advantages of account number portability

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