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FCA to expand hot house for digital firms with regulatory nursery

  • 20/04/2021
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The financial watchdog has confirmed plans to open a regulatory ‘nursery’ by Autumn to offer enhanced oversight to digital firms who need higher levels of support post-authorisation.


In a speech by FCA chief executive Nikhil Rathi at UK FinTech Week, he said it was the regulator’s role to “secure the right balance between a financial sector that is globally competitive, works for consumers, and is secure over the long-term.

“Here, we are drawing on lessons from project innovate, which has shown that once authorised, [digital] firms continue to need higher levels of support from the regulator and, often, enhanced oversight.”

Currently, new technology firms are treated in the same way as those with a long track record. This move aims to culture closer communication post-authorisation to provide support and intervention where needed, said Rathi.

The FCA will also start to invite year-round applications for the sandbox, and introduce a consultative development scheme, which allows digital firms to evolve in step and with oversight from the regulator. So far, over 500 innovating firms have been supported by the regulator, around a third of those that applied, with 137 passing through the sandbox.

Of those, over half successfully completed their test and the regulator said those tests that did not go as planned, they provided intelligence about what works and what doesn’t, without risk to consumers or markets. The products include new ways to pay, insure and access advice and regulatory technology allowing firms to manage the compliance in the issuance of digital assets or deal with anti-money laundering requirements.

This work also informed the regulator’s decision to ban the sale of crypto derivatives to retail consumers because the majority lost money, despite significant price increases in the underlying assets.


Threat to regulate social media and search firms

Rathi said the regulator has already called for the government to better protect financial consumers online saying online search and social media firms need to take responsibility for ads promoting risky or fraudulent investments.

The regulator wants to reverse these firms’ exemptions from the financial promotions regime which expired when the UK left the EU.

“We see no reason why different standards should apply to a search engine or social media compared to a newspaper. If these platforms choose to display and profit from adverts for risky – and in some cases fraudulent – investments, they should also comply with financial promotions rules,” he said.

The regulator will act if these platforms fall short, he added.

Yesterday, the regulator also announced two key digital hires to lead its drive to “build a data-led regulator able to make fast and effective decisions”. Ian Alderton will shortly start as chief information officer and Ian Phoenix as director, intelligence and digital.


The outlook


UK fintech has grown spectacularly with revenue rising to £11bn in 2019 – almost doubling in only four years and accounting for almost 10 per cent of the global total.

This morning, the Bank of England and the Treasury announced plans to set up a taskforce to explore the possibility of a central bank digital currency, according to the BBC.

The aim is to look at the risks and opportunities involved in creating a new kind of digital money, mirroring the value of sterling.

Issued by the Bank for use by households and businesses, it would exist alongside cash and bank deposits, rather than replacing them.


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