The Government has acknowledged a sweet spot of innovative potential at the point where financial services and technology collide. The UK is looking to harness that potential and maintain its position as global fintech trailblazer and regulatory market leader. In a speech last week, Financial Conduct Authority (FCA) CEO Nikhil Rathi pointed out that the UK's success in financial innovation has been enabled by regulatory open-mindedness.

It was the UK that launched the first regulatory sandbox, which allows new innovative ideas to be safely tested with real consumers before reaching the market. Over half of the 137 firms which have passed through the sandbox did so successfully and as a result we have new products on the market offering innovative ways to pay, insure and access advice. Even where the sandbox experience doesn't go as planned, there is a valuable output of intelligence on what does and doesn't work.

Similarly, the UK pioneered Open Banking, which empowers people and businesses to use their banking transaction data to access better financial products and services. And the FCA leads and chairs the Global Financial Innovation Network, which provides aims to improve the efficiency of dealings with regulators for innovative firms looking to scale new ideas and to develop cross-border testing of innovative financial products and services.

The Government, keen to see innovation in the financial services sector and its impact on the wider economy, have, through its recommendations to the FCA, tasked the regulator with encouraging the development of new methods of engaging consumers of financial services and new methods of raising capital.

As well as creating a regulatory nursery to support newly authorised firms, the FCA will be taking forward the Kalifa Review's recommendation for a market-leading 'scalebox' to support firms focusing on scaling innovative technology. Enhancements will be made to the (already busy) regulatory sandbox to allow year-round applications (rather than through time-limited windows), and the piloted digital sandbox, which supports innovation at the 'proof of concept stage', will be placed on a more permanent footing.

The Government has asked the FCA to secure the "right balance between a financial sector that is globally competitive, works for consumers, and is secure over the long term". In other words, the FCA must balance its regulatory objectives of promoting competition, protecting consumers and maintaining the integrity of UK markets. Providing critical support for innovation is key to achieving this balance. By enabling new market entrants to test innovative ideas and achieve regulatory approval through its market-leading sandbox offerings, the FCA can deliver benefits for consumers seeking easier, more intuitive access to financial services and new ways of transacting and investing, while supporting the future of the UK economy. Not only do new firms receiving FCA support bring beneficial innovations to market, but also incumbent firms respond to new challengers by improving their own offerings.

To deliver long term on its regulatory objectives and on the remit set for it by Government, the FCA must maintain its strong track record of embracing and encouraging innovation. That robust regulatory open-mindedness remains key to the UK's continued financial innovation success.

If you would like to discuss any issues in this blog please contact Bruce Stephen or your usual Brodies Banking & Finance team contact.


Lindsay Lee

Senior Associate