UK Regulator Encourages “Innovation-Heaven” in Financial Products

The Financial Conduct Authority (FCA) will identify barriers to innovation and create a hub to give compliance advice for innovative new products. There will also be an “incubator” dedicated to support innovative businesses as they seek authorisation from the regulator. Martin Wheatley, Chief Executive at the FCA, outlined the plans during a speech at a Bloomberg News event in London last Thursday.

Wheatley aims to encourage more innovation in financial products, especially around rapid advances in technology such as using mobile phones for banking, virtual currencies and online investments like peer to peer lending and crowd-funding. “The tone is different because I think we recognise that our core objective of making markets work well is not just served by locking down everything that could go wrong,” said Wheatley. It’s certainly a growth sector of the industry, as payments initiated on tablets and smartphones increase, the broader mobile payment market is expected to be worth around $721bn by 2017.

Wheatley believes that London has the capacity to become a European trendsetter in a booming tech scene and create an “innovation heaven,” though he cautions that there won’t be a return to the pre-crisis “light touch” regulatory regime. He wants an “FCA that creates room for the brightest and most innovative companies to enter the sector.” It’s all about “finding the right distance between regulator and regulated” he said.

The supervisor will start seeking views next week from the industry on its plans to foster and monitor advances in technology, including a public consultation on how limited or simplified automated advice could be given to customers online without the financial firm having to comply with the full array of regulatory compliance. In spite of this declaration, the FCA’s authority to nurture creativity and offer waivers from some rules will be limited by the European Unions oversight, whose financial supervisors are already cautious of emerging trends such as digital currencies, and politically mindful of recent national supervisory failures.

The FCA was launched in April 2013 to better protect consumers after numerous miss-selling scandals UK. Banks have set aside more than £13b ($22b) over the past three years to compensate customers who were sold payment protection insurance they did not require. Additionally, the industry still faces probes into allegations that key currency and commodity benchmarks were manipulated. The FCA has put an emphasis on moving forward in priority areas like ethics, crisis prevention and consumer protection. Wheatley elaborated: “We want firms to have the freedom to break new ground. But we know there would be limited societal appetite to accept business failure if things went wrong as a result.”

Innovative technologies have a huge role to play not just in financial product creation, but also in the ability for regulators to better supervise both individual firms and the wider financial system. According to Wheatley “it’s an imperative for regulators to be standing on the right side of progress.” He believes that the connection between regulators and the regulated is evolving into a considerable strength for the UK economy, but says that firms must also take their share of the responsibility to move things forward: “One of the big risks if history is any guide, is that economic recovery gives way to over-confidence. And over-confidence gives way to lobbying by firms who want to unpick regulatory reform.”

The full speech is available here

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