UK FCA Business Plan 2016/2017 calls for innovation in the financial sector

Rick Steves

The UK Financial Conduct Authority has released its business plan for 2016/2017, reviewing 2015 and sharing new objectives and considerations regarding the financial sector in today’s world. Regulating over 56,000 firms and having authorized more than a thousand last year, the regulator aims to protect consumers and the financial markets, as well as promoting competition. […]

The UK Financial Conduct Authority has released its business plan for 2016/2017, reviewing 2015 and sharing new objectives and considerations regarding the financial sector in today’s world. Regulating over 56,000 firms and having authorized more than a thousand last year, the regulator aims to protect consumers and the financial markets, as well as promoting competition.

In order to that, the FCA addresses new technology as a risk and a reward. Apart from challenges such as data privacy, defect corrections, and trust in decentralized financial servicing, the Blockchain technology is seen as “an alternative approach to the safe storage of information of value such as trade execution, clearing and settlement and custody. It can provide for secure, transparent and immediate confirmation of information that can then be distributed to all interested parties without the need for a central record-keeping authority.”

Similarly, cloud technology is well regarded by the FCA, allowing “businesses to establish computing estates quickly via specialist firms that provide the computing hardware and associated services quickly and cost-efficiently. Firms can scale their business without large up-front investments, reducing barriers for new market entrants and improving competition”. But the authority alerts for risks of complexity of new outsource arrangements and increased dependence on the cloud service provider.

UK FCA Business Plan 2016/2017 calls for innovation
FCA’s Priorities for 2016/17. Image compliments to Financial Conduct Authority.

The Financial Conduct Authority show concerns for a lack of technological resilience among many firms while systems evolve ever more complex: “the need to balance investment in innovation with maintaining existing systems and infrastructure and a lack of IT expertise at board level are some of the reasons this area continues to present significant challenges”, said the statement, pointing to both conduct risks and potentially systemic risk in case of failure.

Cyber-attacks are viewed as a threat to both legacy systems and new entrants, which has led to the requirement for more expertise and modernized systems. “We will focus on identifying the impact of operational resilience risks in the firms likely to cause the most disruption to markets and consumers resulting from an incident, and how firms deal with such risks and impacts.”

In regard to risks of innovation and technology, they can be synthetized as:  widespread adoption of technology is likely to be limited by vulnerabilities; many firms remain reliant on complex IT infrastructures, tighter margins are leading more firms to outsource processes to third-party firms; cyber-attacks are increasing and pose risks to consumers and markets; and rigid regulation.

The FCA and its regulation is encouraging innovation, though Project Innovate, and supporting RegTech (adoption and use of technology to assist financial services firms to understand and meet their regulatory requirements more efficiently or effectively) to promote more compliance.

They expect positive results from the Call for Input made to RegTech and FinTech in order to reduce the regulatory burden on firms and improve compliance. The Call for Input also extends to Big Data:

“We will also analyze how our regulatory framework affects Big Data developments to decide whether we will conduct a market study or take a different approach. This will be our first detailed study of Big Data and we will use what we learn in our work with other sectors.”

The Financial Conduct Authority plans to expand Project Innovate to open a Regulatory Sandbox in the Spring: “This will give firms which meet our eligibility criteria a safe space to test innovation without immediately having to meet all the normal regulatory requirements. They will be able to test new products, services, business models and delivery systems”, said the report, adding that unauthorized firms will benefit from restricted authorization for testing purposes.

“Embrace innovation” is one of the mottos in the business plan as the FCA recommends the industry to “consider setting up a not for-profit company to act as a sandbox ‘umbrella’”, while hoping their own sandbox will speed up the time it takes for new and innovative products to reach market and start benefitting consumers.


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