Martin Wheatley, CEO of the UK’s Financial Conduct Authority (FCA) delivered a speech last week at the Future of Financial Services event in London entitled Regulation – supporting vibrant markets.
With financial innovation changing the economic and social landscape so rapidly global regulators have a full agenda, not just dealing with the immediate issues post the last financial crisis, but ensuring that they effectively regulate against new threats to both consumers and the wider economy as a result of financial innovation. Mr Wheatley’s speech covered two linked themes – competition and financial innovation. Don’t mistake this for a softening of regulatory oversight, “Effective policy and supervision is the first [priority]” reminds Mr Wheatley from the outset.
The FCA is still concerned about a lack of completion in certain areas of financial services, and gives the example of four High Street retail banks servicing 80% of UK consumers: “you’re statistically more likely to divorce you wife or husband, than to separate from your current account provider” he states as a comparison. There is, he notes, some progress with 14 new banks authorised since 2013 and the evolution of crowd funding peer to peer lending and other forms of shadow banking becoming an important source of funding and liquidity. This he describes as “significant progress” but one which also needs “refereeing”. You need to “make sure that competition plays out in the interests of both market and consumers” he says.
The basic question he remarks is a simple one “Is there a competitive landscape?” He says that if you want reform, this must partly come from consumers as ultimately they have the power to discipline the market by their choice. Increasing the number of players on the pitch will not necessarily translate into an effective increase in completion. The wrong approach, he reminds us, is for firms to unpick principles in the pursuit of profit with no apparent social utility, citing the example of miss-sold payment protection insurance policies.
The FCA is seeing the emergence of a contrasting group of innovators that are looking, in the financial technology space in particular, to deliver ‘one-click’ standards of customer service. However, what effect this will have on the market place is unclear at the moment. Mr Wheatley acknowledges that at the moment it is very difficult to predict how the increased mechanism of financial services will play out over the coming years. The UK and Ireland are he says today the fastest growing fintech incubators in the world, developing at an annualised rate of some 74% since 2008. Against this background the FCA does not want to create an environment where innovators see the UK as an unhelpful place to conduct business which is why it created the ‘Innovation Hub’ last October.
He acknowledges that the FCA is looking at the regulatory regime itself: “At the moment, key areas here include questions over how innovators access finance; uncertainty around regulation in areas like digital currency, and the FCA’s own paper-based processes.” It is he remarks, “…an imperative for regulators to keep in step with the economic and social cycles around it”.
Regulation, he concludes, should “be a friend to both business and consumer”.
The full speech, Regulation – supporting vibrant markets is available here.