FCA innovation forum should support discussion on 'incremental' as well as 'disruptive' change, say businesses

The regulator has published feedback from six roundtable events it hosted in the summer as part of its 'Project Innovate' scheme (10-page / 167KB PDF).

It said that businesses that had attended those events had expressed desire for Project Innovate – a forum for financial services companies to gain an understanding from the FCA of the regulator's thinking on industry plans to innovate – to address small changes in practices as well as major overhauls.

"The point was made that innovation is not solely linked to technology, but also business models, product design, delivery of services and organisational purpose," the FCA's feedback summary paper said. "Innovation can create new markets for products and services. All of this can benefit consumers, especially where the consumer decision-making process is simplified. In assessing benefits we were urged not to just focus on prices. Several participants indicated that most innovation in financial services is incremental, or a new way of doing something that already exists… Project Innovate should include both types of innovation in its scope."

Businesses present at the roundtable events said that a "risk-averse approach" has prevailed in the financial services industry in the UK because it has been "difficult for regulated and non-regulated businesses to receive feedback from the regulator on an innovative product or service before launch".

They called for the FCA to "provide more clarity" to innovators, whether they are already regulated or not, on whether new products or services those companies are considering launching would be held as compliant with existing regulations.

Regulated firms present at the roundtable events said that they felt the FCA "sometimes appear[s] to be engaged in a ‘war’" against them and said that a "more open and collaborative" tone would help foster innovation.

Small innovators that attended suggested that the FCA could develop a more flexible approach to authorising their business. It said that "an 'approval in principle' option" would help companies that "meet the majority" of authorisation requirements to "comply with the outstanding requirements". The example they raised was where innovators meet all of the regulatory requirements other than having raised sufficient capital. They said that an 'approval in principle' certification from the FCA would help encourage potential investors to provide funds in support of start-ups.