The Financial Conduct Authority made a Call for Input to help identify regulatory barriers to innovation in digital and mobile solutions for the financial services sector.
The Call for Input represents the FCA focussing on one of its operational objectives, that is, to promote effective competition in the interests of consumers. The Call for Input cites statistics indicating that the numbers of 'non-banked' and 'non-saver' adults across the UK are still high, suggesting that the comparatively high statistical reach of mobile and digital services could serve as a means of reducing this financial exclusion. Against this proposition, the FCA recognises that regulation can act as a barrier to entry and distort competition.
The FCA asks for responses by 7 September 2015 on two specific questions:
Question 1 What are the specific rules or policies that cause barriers to innovation in digital and mobile solutions for financial services (products or processes)? Please provide examples of when these rules or policies have stifled development and what was the impact (e.g. delay, abandonment of project, economic impact).
Question 2 Are there any rules or policies that should be introduced to facilitate innovation in digital and mobile solutions for financial services (products or processes)? Please provide examples of when the absence of these rules or policies has stifled development and what was the impact (e.g. delay, abandonment of project, economic impact).
Comments on both UK and EU law barriers are welcome.
In preparing responses bear in mind that they will be available for public inspection unless specifically requested otherwise – a mere confidentiality disclaimer in an email won't be sufficient. Even then responses could be disclosed pursuant to requests under the Freedom of Information Act 2000.
Each business will have its own insights but to stimulate the thinking:
- Is the timing and intensity of process to apply for a licence calibrated in a way that is sensitive to those with early stage funding and resources? What could change?
- Despite the work of the Innovation Hub, is the process of mapping an innovative business onto a matrix of legalistically defined regulated activities, instruments and exemptions accessible? Does it result in sufficient certainty? What solutions are there?
- The FCA repeatedly takes the view that its rules are media neutral. Is this stance fit for purpose going forward or do the rules need to engage more purposefully with the realities of mobile and digital consumer behaviour and practical limitations?
- If innovations need to be 'Beta tested' before resource is invested in them, does the regulatory system allow for this?
- Is the intensity of the compliance burden a barrier to entry? How would you prioritise the value of different aspects of regulatory protection to consumers? Is the FCA approval of senior management teams critical as it's not something consumers can assess themselves? Is the protection afforded by the Financial Services Compensation Scheme or Financial Ombudsman Service key, or is it the protections on insolvency such as client money? Where do the rules on systems and controls, conduct of business and capital fit into this?
- Is there sufficient convergence of purpose between different regulators, for example the FCA and PhonepayPlus?
- Investment in innovation is critical. What are the perceptions of your investors in terms of the attractiveness, ease or risk of investing into a regulated project and are there any barriers in market appetite here that the FCA may not have sight of?
- Have we lost sight of where some aspects new regulation, such as the regulation of money remittance, is going in terms of its impact on digital and mobile driven growth and disintermediation in other sectors of the economy? Are too many unobjectionable consumer – intermediary - merchant relationships being brought within regulation?
- Is the balance right in terms of the burden of suitability rules and compliance costs / risk where the objective is to encourage non-savers to start saving on a small scale?
- Is the FCA accessible enough in terms of providing guidance? In giving guidance, is the FCA prepared to be challenged as to its assumptions around risk? Does the FCA take an overly legalistic approach, or take account of existing market trends?
The FCA is clearly keen to hear from financial services orientated business that are using digital and mobile technology, recognising that these businesses can help drive more inclusive economic growth.