FCA chair warns of FinTech risks, Brexit costs
Written by Peter Walker
The Financial Conduct Authority’s chairman has warned of the potential for new technologies to create new risks in financial markets, as he addressed the regulator’s approach to FinTech and RegTech.
Speaking at the launch of the regulator’s annual report this morning, Charles Randell stated that innovation in areas like big data and machine learning are a test of the FCA’s abilities to adapt.
“New technologies tend to create new risks,” he commented. “They expose more people to problems like online fraud and misuse of data, and we recognise that they can also leave some customers behind, particularly the most vulnerable.”
However, Randell added that technology can also be “enormously positive” and is now integral to delivering financial advice, products and services.
“It can help firms manage money laundering risks, it can also reduce market entry costs for new businesses, driving greater product differentiation and competition across the market, ultimately supporting a greater proportion of society.”
He concluded that this means the regulator must be very careful with how it manages this “double-edged sword”. The FCA generally describes itself as ‘technology neutral’ - meaning it approaches the regulation of individual technologies on their merit and champions useful developments in FinTech and RegTech.
Randell noted the benefits of the regulatory sandbox, which has enabled new products to be tested effectively and reduced the time and cost of getting innovative ideas to market.
“As you might expect, this positive experience has encouraged regulators in other jurisdictions to follow our lead,” he observed.
“My hope is that the number of joint innovation programmes between different countries, both formal and informal, will grow. Partly because by collaborating we can respond better to the breadth and depth of developments in financial services, and partly because innovation on a global scale requires consistent standards.”
With that he moved on to the theme of regulatory cooperation across borders, which FCA chief executive Andrew Bailey mentioned in a speech last week.
“As financial services have become globalised, so has financial crime,” stated Randell. “As I say in the annual report, whatever shape Brexit eventually takes, maintaining and deepening our partnerships with international regulators and law enforcement agencies will remain vital.”
The FCA’s business plan for the next year explains that it will continue to devote a considerable part of resources to Brexit. In total, the regulator has identified that we need an EU withdrawal budget of some £30 million.
“I think it is important to say that meeting this funding requirement has required us to take difficult decisions elsewhere,” pointed out Randell. “Nonetheless, I want to stress that the FCA has worked to deliver its commitment to public value by keeping to an overall budget that is flat in real terms.”
Last month, the government's technical notices on a potential 'no deal' Brexit revealed that electronic money and payment institutions from the European Economic Area (EEA) will be able to continue passporting into the UK for three years.