On 7 August 2018, the Financial Conduct Authority (FCA) published a consultation on the creation of a Global Financial Innovation Network (GFIN). With innovation in the global financial services market rapidly increasing, it is important for firms to consider the options for building, implementing and sharing experiences of digital solutions.
Read our summary below of the key points from the FCA's consultation.
There has been significant growth in the use of fintech in financial services which has led regulators from various countries considering the new business models, services and products available. In February 2018, the FCA proposed the idea of a "global sandbox". This received positive feedback and the following key themes emerged:
- Regulatory co-operation – support for regulators collaborating on common challenges or policy questions raised across jurisdiction
- Regulatory engagement – space where the industry can engage with a broader group of regulatory stakeholders
- Speed to international markets (cross border potential of emerging technologies) – reducing the time taken to bring new ideas to markets
- Governance – importance of transparency and fairness for firms wishing to get involved
- Emerging technologies / business models – artificial intelligence, distributed ledger technology, data protection, AML and ‘know your customer’
Following the proposal, the FCA held an event in March 2018 to discuss the opportunities a GFIN could offer. It led to a consultation inviting views.
The FCA's proposed mission statement summarises the GFIN's aim:
The GFIN is a collaborative policy and knowledge sharing initiative aimed at advancing areas including financial integrity, consumer wellbeing and protection, financial inclusion, competition and financial stability through innovation in financial services, by sharing experiences, working jointly on emerging policy issues and facilitating responsible cross-border experimentation of new ideas.
The FCA says that the GFIN could serve three main functions:
To act as a network of regulators to collaborate and share experience of innovation in respective markets, including emerging technologies and business models
- The network would operate as a forum that enables organisations to collaborate to advance financial innovation. It would be made up of an overarching group containing all GFIN members, which would share intelligence, highlight key pieces of work and discuss emerging trends.
- The network would seek to improve collaboration and information/knowledge sharing to benefit the broader regulatory experience.
- The feedback to the idea of regulators collaborating on an innovation network was that it can be difficult to initiate a conversation with the regulator in a new market. The GFIN will help solve this by helping firms with international expansion or policy discussions with several regulators.
To provide a forum for joint policy work and discussions
- Different implemented regulatory approaches can act as a barrier to scaling new ideas across markets.
- The GFIN would act as a tool to identify areas of activity, focusing on (1) emerging technology and its interconnectivity with business models; and (2) evaluating the potential of RegTech and SupTech.
- Feedback received by the FCA indicates there is a need to create a function to allow discussion of emerging technologies and business models with the relevant regulators. The GFIN would need to establish common areas of interest across the regulated bodies to make this as effective as possible.
To provide firms with an environment which can trial cross-border solutions
- Trialing new technologies in multiple jurisdictions is key to determining the potential benefit for end users. Currently, innovation initiatives operated by financial services regulators tend to be domestically focused.
- Cross-border trials would allow organisations to test their idea in multiple jurisdictions and gain real-time insight into how their product or service would operate in the market.
- Innovative ideas or modelling that does not currently fit within the existing regulatory framework could benefit from the cross-border solution. It could also provide regulators with an opportunity to observe emerging business models and technology to help inform policy and supervisory work.
The deadline for responses to the consultation is 14 October 2018 and the FCA has asked for feedback from innovative financial services firms, financial services regulators, technology companies and providers.
With the emergence of technologies and new business models in financial services it is important to consider how these firms can meet the necessary regulatory requirements to ensure consumer protection and regulatory compliance. The introduction of the GFIN would be positive for innovative firms and enable a more efficient way for these firms to interact with the regulators. However, it will be important for careful consideration to be given to the questions asked to make sure the network is fit for purpose.
Christopher Woolard, FCA Executive Director of Strategy and Competition and Board member commented: "The creation of the Global Financial Innovation Network (GFIN) is an important next step for organisations like ours who are actively engaged in understanding and harnessing the benefits of innovation in financial services for consumers, while managing the potential harm."
For further information please contact Russell Kelsall (Partner), Alanna Tregear (Associate) or Matt Edmonds (Legal Analyst).
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at August 2018. Specific advice should be sought for specific cases. For more information see our terms & conditions.