In his first speech to a fintech audience since taking the job, the head of the UK’s Financial Conduct Authority, Nikhil Rathi, indicated his priorities for the FCA when it comes to innovation in financial markets. There were three key messages for the fintech and wider tech sectors:
1. The FCA has to put consumers first
The FCA has a reputation for being an innovative and innovation-friendly regulator. To justify this approach, it can point to its duty, which is set in legislation, to promote competition.
But Mr Rathi is at pains to point out that its support for financial innovation has to be “in the interests of consumers” and balanced against another of its statutory objectives: to protect consumers. Firms are put on notice to expect “quick action” from the regulator where it identifies that consumers are put at risk.
2. More support for fintechs in the “nursery” years
The regulatory sandbox, which the FCA pioneered, has helped new firms test their products in a (regulatory) safe environment since 2017. The Kalifa Review has since recommended setting up a “scalebox” to support firms beyond the initial start-up stage.
In response, Mr Rathi confirms that the FCA will create a regulatory nursery by autumn 2021. The idea is that the FCA will help “steer firms in the right direction” once they receive their regulatory licence. Firms will want to look out for what support will be made available and what “graduation” from nursery will look like.
3. Online platforms should feel the heat on financial promotions
As our colleague Ben Packer commented in March, the FCA wants online search and social media firms to take more responsibility for financial promotions on their platforms. The promotion of scams and high-risk investments online is a high-priority area of concern for the FCA.
Mr Rathi reiterates his message for these platforms, saying that “consumers shouldn’t be subject to lower standards or greater risks because they find an investment online”. Platforms can expect closer scrutiny about where they fit within – and how they comply with – the UK financial promotions regime.
Innovation comes with risk. New products and new firms fail. They can take consumer's money with them. As a result, we, as regulator, need to understand new ideas and stay close to innovative firms