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…and the regulatory reaction
The rise of FinTech
Gillian Roche-Saunders
Victoria Aderounmu
January 2016
What is Fintech?
Oxford Dictionary
What is Fintech?
Financial technology, also known as FinTech, is a line of
business based on using software to provide financial services.
Financial technology companies are generally startups founded
with the purpose of disrupting incumbent financial systems and
corporations that rely less on software.
Wikipedia
What is Fintech?
Investopedia
The climate for Fintech in the UK
Gaps in the market
Competition mandate for FCA
Government’s aim for a global FinTech centre
London landscape: finance, technology and political power
Currency
A flavour of the FinTech landscape
Payments & Transfers Financial Management
Lending & Financing
Investments & Exchanges
Banking
Virtual Currency
Data
Infrastructure
Regulatory challenges for FinTech generally
Breaking new ground
Competence of team
Identifying your activities
Old rules to new business
Assessing what rules apply
New ways of interacting
Online risk
Cybercrime, cybersecurity
Getting a bank account
Global business, local rules
No harmonisation
Financial management
Guided investing
‘Robo’ advice
Online wealth management
Financial management
CAPACITY
FOR LOSS
Second-guessing
Empowerment
CENTRALISED
PROPOSITION
Shoehorning
Overreliance
GUIDING
TOOLS
Promotion
Cost-effective
Virtual Currency
PurchaseTransfer to
e-walletTransaction Verification
Added to Blockchain
“A type of unregulated, digital money, which is issued and usually controlled
by its developers, and used and accepted among the members of a
specific virtual community”
Benefits
User anonymity:
Privacy
Transparency of
transactions
Cheaper and faster
transactions
Cyber-crime defence
Financial inclusion
Risks
User anonymity:
Crime
Lack of government intervention
Volatility Low
consumer protection
Terrorist financing
Distributed Ledgers
Digital Record
• One public version of identical records of transactions and existence of VCs
Reliable
• Difficult to manipulate information
Financial Services
• Potential to renovate the current banking infrastructure
Further opportunities
• Endless possibilities of use, such as taxes, passports, votes etc.
The Future of Virtual Currencies
Payments and Transfers
Registered vs Authorised
PSD2 and Wire Money Transfer Regulations
Security of payments (EBA guidelines)
New: the Payment Systems Regulator
Challenger banks
Credit risk: standardised vs internal ratings based approach
Services vs risk on balance sheet
Bank Start-Up Unit
FT
Challenger banks
Bank authorisation when
need early certainty in
outcome
Initial Application
Mobilisation
Authorisation with Limitation
Restriction lifted
• Business viability
• Senior appointments
• Capital and liquidity
• IT and outsourcing
• Governance
• Policies & procedures
Crowdfunding & P2P lending
Crowdfunding
Challenge of existing rules to new business
Focus on ‘user journey’
P2P: A brand new regime
Prescriptive rules not a good fit
Latitude causing uncertainty
FCA Sandbox
Regulated Sandbox activity
Exemptions
By Way of Business test
Legislation
• Reducing uncertainty, cost and time
• Encouraging more solutions to be trialled
Individual guidance
Restricted authorisation
No enforcement action letter
Waiver
FCA
Virtual sandbox
Sandbox umbrellaIndustry
FCA Sandbox
Innovative
Consumer benefit
Need for testing
Sufficient preparation done
In scope
Questions
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