Fintech

UK initiates novel regulatory environment

http://techcitynews.com/2016/05/02/how-the-fcas-regulatory-sandbox-scheme-could-help-uk-fintech-startups/

Possibly the most eye-catching initiative, particularly for startups and, importantly, investors is the regulatory sandbox.

The sandbox has been formed to provide a safe environment for businesses to test their products.

For new entrants to the financial services market, the intention is that unauthorised businesses can use the sandbox to test products, services, business models and delivery without first needing to meet all of the normal regulatory requirements and incurring the considerable costs of putting in place the complex structures and processes to successfully apply for regulatory authorisation.

These firms will be granted limited authorisation for testing purposes. Consumers will not be left be exposed during the testing process. The FCA has suggested a number of safety measures ranging from informed consent through to the businesses in the sandbox providing a meaningful indemnity for losses.

Furthermore, the FCA will apply discretion in determining both the level of limited authorisation and the safety measures on a case-by-case basis rather than forcing a one-size-fits-all model.

 Meanwhile in Canada late in 2015 something similar was suggested in a Munk School report. No word yet on any implementation.

http://tfsa.ca/storage/reports/Current_State_Financial_Technology_Ecosystem_Toronto_Region.pdf

Findings in Canada

2. Despite encouraging signs, so far, Canadian financial institutions have not been as effective as their competitors in other international centres, like New York and London at developing strong partnerships with Fintech startups. Even where relationships between leading financial firms and local Fintech companies exist, they tend to be located at the margins of the financial institutions’ main operations, in incubators or accelerators. Furthermore, the individuals assigned by the banks to represent them in such incubators often lack the executive power to make the strategic decisions required to fully realize the potential of the relationship. The result is that Canadian Fintech companies developing products with the aim of becoming partners or suppliers to domestic financial institutions are at a significant disadvantage vis-à-vis their American and UK competitors. In short, one of the greatest potential advantages of the GTA, the concentration of leading financial institutions, is being significantly underutilized in growing the ecosystem.

5. Canadian financial regulations, considered by some as “best in kind,” are seen as a source of strength allowing Canada’s financial industry to develop a trusted and secure brand in comparison with their international competitors. However, with the rapid rise of Fintech, there is a growing and significant disconnect between the regulators and the latest technological advances. The result is that current regulations make it extremely difficult to undertake the low-level-rapid-experimentation that is necessary to develop safe, useful Fintech products. Even what are now considered to be basic Fintech offerings – such as crowd sourcing and loans – cannot be developed and offered in Canada with the participation of a licensed bank. Thus, what has traditionally been seen as a source of competitive advantage for the financial service sector, our regulatory system, is now seen by many to be an obstacle in the context of the evolving Fintech ecosystem. We believe that it is possible to turn our regulatory environment into an effective growth asset. If the financial sector in Toronto can brand Toronto as a Fintech centre that is safe and reliable, as well as flexible and innovative, it can create a powerful asset for the Fintech ecosystem.