FinTech Policy and Regulation: Summer reflections and a look ahead to autumn
By Adam Jackson, Director of Policy at Innovate Finance
“High velocity" – that’s my experience of FinTech in my first 90 days as Director of Policy at Innovate Finance – a summer of ever-accelerating pace and scale of innovation, investment, acquisitions and customer growth. The FinTech market is moving so fast you can see discernible change day by day. So what does this mean for policy and regulation and what is coming up this autumn?
The mega trends driving FinTech regulation and policy
The speed of change means the regulators are racing to keep up - as we see in the UK in areas like anti-money laundering authorisation of crypto and the Woolard review of innovation in unsecured credit. Regulators are also eyeing new consumer behaviour- like gamification of crypto speculation which, like adoption rates as a whole, appear to have been fuelled by Covid lockdowns.
As well as bringing new products and services into the regulatory perimeter, the regulators also have a huge role to play in creating the infrastructure for product innovation – regulation that creates new markets. Open finance, digital ID and Bank of England work on central bank digital currency and stablecoin regulation are good examples where the UK can help accelerate and support innovation. This needs to progress quickly; in areas like stablecoin regulation, the market is already outpacing the policy makers’ thinking.
Regulatory catch-up is one of three mega trends in policy and regulation which I see driving a ‘regulatory decade’.
The second is continued political volatility. The last ten years have seen unpredictable elections, a rise of populism, anti-business feeling and a rejection of economics as the driver of politics – as political institutions failed to keep up with technological, economic and demographic change that created new dividing lines in society.
It may feel like politics has stabilised in the last year, but the tectonic plates have not yet settled. Continued weakness of multi-national institutions means we will see a more national approach to regulation around the world. Whilst there may be many similarities in approach by different countries, there will also be divergence, creating opportunities for innovation, competition between territories and trade friction. Policy will continue to be less predictable and less economically based; and tech firms may be caught in the crossfire of geo-political tensions.
Third, this is the climate decade. A senior official at the Financial Conduct Authority (FCA) recently told me that climate change will shift the centre of gravity for the whole of the FCA. In June the G7 agreed mandatory climate reporting for corporates and the FCA published proposals for asset managers, pension funds and insurers to be required to report on climate related risk across their portfolios. As climate risk becomes the biggest financial risk and alignment with Net Zero becomes the biggest determinant of an asset's value, we will see much more change.
So what’s coming up on the policy and regulatory front this autumn? I’ve plotted some of the activity we expect to see in this chart. It is pretty busy.
To make things simpler, here are three things to look out for over the coming months.
- The next tax and spend ‘set piece’ from the Chancellor: 27 October?
Rishi Sunak has asked the Office for Budgetary Responsibility to publish its next economic and public finance forecast on 27 October. Usually this coincides with the Chancellor's budget or autumn statement (a taster of the March Budget or a mini-Budget in itself).
The Chancellor is also due to publish the government's comprehensive spending review - setting out plans for the next 3 years. This will be significant for alternative finance lenders, as it should set parameters for British Business Bank support for SME lending. It may also be an opportunity for the Chancellor to provide a further update on implementation of the Kalifa Review, including proposals for ‘CFIT’ (Centre for Finance, Innovation and Technology), expanding R&D tax credits, and perhaps further progress on reforms to the UK listings regime.
- COP26 Climate change conference: 1-12 November
Mark Carney is building commitments from different sectors of financial services in the run up to COP26. These voluntary agreements to align portfolios to Net Zero targets will shape the market and future regulation. Tougher emission reduction targets agreed at COP26 will need to be implemented quickly; and financial markets are an obvious lever for this, with an ability to drive change even in countries that have not signed up to more ambitious targets. So expect COP26 to prompt further focus and regulatory action across financial services. Fintech has a critical role to play in being an enabler of this; and is well positioned to seize the market opportunities it will open.
- The regulatory production line - throughout autumn
We expect further development of regulation across a range of areas including
- Further thinking from HM Treasury on crypto assets
- HM Treasury consultation on regulating unsecured credit (buy now, pay later)
- FCA proposals on a new consumer duty
- Follow on from the current consultation by the FCA, PRA and Bank of England on regulatory plans to improve diversity and inclusion in financial services.
- In addition, we will see further work on developing frameworks for innovation:
- Digital ID: work led by DCMS on developing governance and the start of alpha testing
- Open finance: proposals expected from the FCA on the next areas for extending open finance
- Open banking entity: CMA proposals on putting the Open Banking Entity on a firm footing
- Bank of England work on stable coin and a Central Bank Digital Currency (expect further discussion on this).
Navigating the regulatory and policy waters
The FT recently reported that City of London finance executives were cancelling their summer holidays to deal with the volume of regulatory consultations. I’m afraid there will be no let up on this regulatory activity in the coming months.
I'll be unpacking some of these issues in more detail in future blogs and bringing the FinTech voice to the table in discussions with government and regulators.
Meanwhile if you have not already joined us, why not become an Innovate Finance member to help you navigate and shape the policy environment. You can also sign up here to our policy newsletters with further updates and details on how to get involved.