The UK Financial Conduct Authority (FCA) recently expressed its views on fintech innovation, particularly addressing the issues such as how regulation can foster innovation in financial services and how can it ensure a regulatory environment fit for future innovation.

Christopher Woolard, FCA Director of Strategy and Competition, spoke on these subjects at the FCA’s event on UK FinTech: Regulating for innovation on 22 February 2016. 

He said that the FCA cares about innovation “primarily because of our duty to promote competition in the interests of consumers. One of the best ways we can promote competition is to foster disruptive innovation.”

He noted that the pace at which digital landscape is evolving, necessitates the regulator to think about the risks that financial innovation may bring as well as balancing that against creating unnecessary barriers to the many opportunities. The FCA launched Project Innovate in October 2014 to address these issues.

“This year we want to make Project Innovate’s service work end-to end. Firms that have received initial support from the Hub will have their applications handled by a specialised Project Innovate authorisation process. After authorisation we will provide dedicated supervisory support, normally for one year”, he said.

Blockchain and Distributed Ledger Technologies

Woolard said that the FCA is looking at ways to encourage firms to innovate with technology and helping them to help identify ways to integrate these new technologies into their business models. The regulator has launched “a call for input” to seek broader views on how it should advance on RegTech – “thinking about solutions to issues that already sit squarely within the sphere of regulation”.

Speaking of blockchain and distributed ledger technologies, he said that the technology has the potential to revolutionise financial services, adding that “whether it is the panacea of all ills in the financial world is yet to be seen”.

Woolard noted that there are a lot of regulatory and consumer issues that will need to be discussed as the technology evolves. However, he admitted that innovation can be an iterative process and is unlikely to be perfect in the first go.

“During the phase of any digital development, it’s crucial that innovators are allowed the space to develop their solutions. The FCA continues to monitor the development of this technology but is yet to take a stance until its application is clearer”, he added.

Consumer Protection

Woolard said that the FCA continues to work with firms developing distributing ledger technology solutions via the Innovation Hub to ensure consumer protections are factored in during the development phase of this technology. He added that the Hub liaises with the rest of the organisation to ensure a coordinated and informed approach.

“We are particularly interested in exploring whether block chain technology can help firms meet know your customer or anti-money laundering requirements more efficiently and effectively. We are engaged in discussions with government and industry on this issue”, he said.