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FCA to expand work with 'large incumbents' to enable innovation


The Financial Conduct Authority (FCA) is to work more closely with major banks and insurers to address barriers to innovation, the UK government has said.

According to the Treasury's draft innovation plan for financial services, the FCA "intends to broaden engagement with large incumbent institutions". 

"To facilitate increased dialogue the FCA plans to proactively engage with large incumbents to ensure their potential for consumer-friendly innovation is not being held back by regulatory considerations," the Treasury said. "In particular, it will seek out opportunities to pilot research on new initiatives." 

Expert in financial services and technology Yvonne Dunn of Pinsent Masons, the law firm behind Out-Law.com, said: "We have heard a lot about what the FCA is doing with start-up fintech companies to promote innovation. It is also welcome that the regulator is recognising that innovation does not just happen within the start-up environment and that it is within its power to support a broader appetite among the traditional players in the market to use the latest technology to innovate, whether on their own or in collaboration with others." 

In its paper the Treasury said that it is a priority of the UK government to ensure that financial services regulation "is proportionate and promotes innovation, rather than constrains or inhibits it". 

The Treasury said that one of the things the FCA would do to encourage innovation would be to "broaden and strengthen the scope of Project Innovate", including by "enhancing international engagement". 

Project Innovate is an initiative established by the regulator to gather the views of firms on their plans to innovate, by using new technologies to offer new products or services or develop new business models, and how to meet regulatory challenges in doing so. 

A dedicated 'Innovation Hub' enables firms to raise issues and ideas with the FCA, whilst further schemes such as the regulatory sandbox, the 'regtech' initiative and a new dedicated automated advice unit are among the measures introduced or in the pipeline to help firms innovate in a compliant fashion. 

Last month the FCA and Australia's Securities and Investments Commission (ASIC) signed a deal to make it easier for financial technology firms based in each country to win authorisations to operate in the other country. 

The Treasury said the FCA can help "put UK-based innovators in touch with the right regulators when they look to start doing business in other regulatory jurisdictions" and is "ready to help non-UK innovators interested in entering the UK market". The FCA wants to put more "co-operation agreements" in place "with key regulators", the Treasury said. 

"The UK attracts fintech innovators from around the world – many choose to base themselves in the UK, not only to be part of a vibrant local ecosystem, but also because they see the UK as a springboard to launch their businesses or products internationally and bolster their competitiveness," the Treasury said. 

In its consultation paper the Treasury has asked stakeholders to outline their views on whether UK regulation provides effective support for innovation in financial services and whether regulators "understand innovation … and potential areas where new technologies and disruptive business models might emerge in the sector". 

Firms are also invited to highlight any "gaps in approach or areas" that they believe UK regulators could do more to support "innovative technology and disruptive business models" and if regulators themselves could "better utilise new technologies to deliver their own work more effectively". 

Dunn said: "The FCA is one of the most progressive regulators in the world in the way it is embracing changes being driven by new technologies. To help firms further the FCA could provide greater certainty in the guidance it sets out to businesses." 

"The regulator is expected to finalise its guidance on cloud computing some time this year. Whilst firms will welcome the fact that the FCA's approach to cloud adoption is supportive, they will be looking for the regulator to go beyond broad principles and provide greater detail and examples on how they can use cloud services compliantly within the final guidance. The risk of substantial fines and of reputational damage should firms get things wrong means that firms may be reluctant to embrace solutions that could ultimately benefit them and consumers if they feel there is not sufficient clarity on regulatory issues," she said.

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