…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