Promoting the UK’s FinTech Ecosystem in Asia
Blogs on 11th December 2018
By Natalie Ceeney CBE, Chair, Innovate Finance
Following on from my previous update, here are some brief observations from my most recent trip to Asia, focusing on promoting the UK FinTech ecosystem.
I travelled as part of the UK trade mission, alongside the FCA, Bank of England, Department for International Trade (DIT) and a group of UK FinTechs looking to strength their links in Asia. Splitting my week between Singapore FinTech Festival and Money 20/20 in China gave me a fascinating insight into some of the differences between these markets. In both countries, my goal was to strengthen Innovate Finance relationships with our counterparts, to fly the flag for the UK and as a conference speaker, to share my perspective on some of the global regulatory developments in FinTech.
I would like to thank all of the organisers involved, as well as the audience of FinTech enthusiasts who joined me along the way. It was great to witness a snapshot of the FinTech innovation taking place across Asia. The rate of technology transformation is truly remarkable, with some strong similarities and also big differences to the UK.
The theme I had been asked to speak on across all conferences was regulation. The UK’s approach has been admired and widely copied around the world, and it wasn’t hard to see why, particularly in a region and industry where regulation is constantly playing catch up with technology. While I was in China, a big scandal was brewing around peer to peer lending, where a lack of regulation had allowed thousands of players to enter the market, some of which turned out to be little more than Ponzi schemes. Chinese consumers lost a lot of money, while regulators struggled to know where to start. In a fast-changing FinTech world, regulation has to weigh up the opportunities that come from innovation with the risk of harm, and different regulators take different views as to where the balance lies.
Meeting up with and speaking alongside regulators from across the world, it was clear that there are many common themes in the way that regulators are approaching FinTech. Most are working hard to welcome or actively support new entrants, encouraging competition by creating a supportive environment for startups and reducing barriers to entry into financial services. The FCA’s ‘Project Innovate’ and associated ‘industry sandbox’ was one of the first examples of a systematic approach to this, and is widely admired and increasingly copied globally. In China, the fact that so much innovation has been driven by big tech giants Alipay and Tencent, has led rise to a new set of challenges, as innovation has progressed faster than much of the underlying structure required to allow services to operate safely, such as credit referencing standards or data security.
Similarly, change to rules and practices that enable or require larger financial institutions to share an individual customer’s information with other authorised providers are being widely adopted as a mechanism for opening up the market and encouraging more innovative services to develop. In the UK and Europe, regulatory change has laid the groundwork for much of the push we see today through PSD2 and in the UK Open Banking. A similar initiative in Australia goes beyond financial services, covering the retail sector too.
But while regulators globally may be grappling with common issues, they are doing so in some different ways. In striking a balance between the risks and potential future benefits of new technology, regulators have some difficult choices about how quickly to allow new practices to develop, and in which markets. Peer-to-peer lending and cryptoassets are sectors where regulatory responses have differed hugely, from outright bans through to a complete lack of oversight and anyone allowed to play. The new initiative Global Financial Innovation Network (GFIN) – a group of 13 global regulators – is seeking to share best practice on regulating innovation, sharing different experiences and approaches. Over time, this suggests that we may see growing consistency between nations, something which would make it easier for FinTechs to move across global boundaries.
Many regulators are working hard to create some common infrastructure to support and underpin their country’s FinTech and financial services activity. The Monetary Authority of Singapore (Singapore FinTech’s main regulator) used their conference to announce a wide range of new developments, aimed at making Singapore a global FinTech hub. Other nations showcased their own equivalent developments, including India Stack, India’s solution for verification and identify. The lack of a common identity and verification solution in the UK is a common source of frustration across the financial services sector, and one of the few areas where we seem behind.
The challenges to regulators themselves in this changing world were also a focus for discussion. Compliance and regulation can be expensive for firms, acting as a barrier to new entrants or a source of risk through under investment. But as big a challenge is that compliance and regulatory approaches are often backward looking, with harm only discovered long after it’s taken place. The regulator of the future needs to be one which uses structured and unstructured data for real time regulation. RegTech offers potential, therefore, to both reduce risk and harm and to help to lower the astonishing US$1.5bn the financial services sector spends each year on the direct costs of regulation.
A resounding take-away from my week travelling was how well positioned the UK is for FinTech. FinTech is global by its nature and developments move fast across boundaries, – whether products, services or regulatory approaches. Although China and Singapore have some spectacular innovation, there are many areas of development where the UK leads, and is recognised as doing so. And although we are widely copied, the UK remains the best place globally to be a FinTech. It’s not just me saying that. On a panel I chaired of eight global regulators, the question was asked from the audience ‘if not your own, which regulatory environment do you consider the best for FinTech?’. The answer, from every panellist? ‘The UK’.