Find out what we have achieved so far with Project Innovate and our next steps for the year ahead.
Project Innovate went live at the FCA in October 2014. Our aim is to make sure that:
- We encourage innovation in the interests of consumers.
- We promote competition through disruptive innovation − innovation that offers new services to customers and challenges existing business models.
To do this we engage constructively with innovative businesses, and seek to remove unnecessary barriers to innovation.
So far we have pursued our aim in two main ways:
- The Innovation Hub helps innovative businesses gain access to fast, frank feedback on the regulatory implications of their concepts, plans, and choices.
- We have tackled structural issues that innovators told us impede the progress of their propositions towards the market.
Project Innovate has been widely welcomed, and we believe its first nine months have been successful.
Government Office for Science, Fintech Futures, 2015
Fintech start-up, Twitter, July 2015
Fintech start-up, Twitter, July 2015
The foundations have been laid. We have helped over 100 innovative businesses, and over a dozen have now applied for FCA authorisation.
A firm wanted to set up a one-stop lending market for corporations and investors. Their platform is designed to allow investors to invest directly in corporations that need capital, and cut out the middlemen.
We helped the firm understand the regulatory landscape and gave them an informal steer about our rules. This helped them position their business as an appointed representative so that they were able to bring their product to market sooner. When they pitched their start-up story at an accelerator demo day, they cited the Innovation Hub as part of their success story.
We have introduced some changes to help innovators progress their propositions:
- Our use of ‘informal steers’ has freed up communication.
- We have worked with the government on its plans to introduce regulation for digital currencies.
- We made a statement on disproportionate de-risking that denies businesses access to banking facilities.
But the longer term success of Project Innovate hinges on its contribution to the shape of financial services markets. We need sharper competition to deliver to financial consumers better value for money and higher quality interactions with financial services providers. And to sharpen competition, we need to encourage innovative solutions from market entrants and incumbent financial institutions. Project Innovate’s task is to foster these developments.
To bring that about, we are going to broaden and strengthen Project Innovate in several ways.
Advancing Project Innovate: the next steps
Strengthening Project Innovate will increase the value of its longer term contribution, not only from the perspective of our competition objective, but also from the viewpoint of innovative businesses:
New market entrants: an end-to-end experience. From October 2015 businesses that have received initial support from the Hub will have their applications for authorisation handled by a specialised Project Innovate authorisation process. After authorisation we will provide dedicated supervisory support, normally for one year. This will deliver a seamless experience of regulatory processes for the businesses concerned, and minimise the risk of unnecessary delay. We must stress, though, that a business benefiting from initial support may or may not pass the tests for authorisation; in deciding whether to allocate initial resource, we make no judgment about whether the business will ultimately meet the relevant conditions for authorisation.
International engagement. Part of the mission for Project Innovate is to build disruptive innovators at scale. The UK attracts fintech innovators from around the world. In many cases they base themselves here, not only to become part of a vibrant local ecosystem, but also because they hope that the UK will be a springboard from which they can launch their businesses or products internationally, making them potentially more sustainable challengers. We will:
- Extend the remit of the Innovation Hub to the promotion of pro-innovation regulatory solutions to international standard-setters.
- Help to put UK-based innovative businesses in touch with the right regulators when they seek to start doing business in other regulatory jurisdictions.
- Seek memorandums of understanding with key regulators on this matter.
- Stand ready to give help non-UK innovators interested in entering the UK market.
Engagement with large incumbent institutions. Project Innovate was always aimed at businesses of all shapes and sizes seeking to innovate in the interests of consumers. But we have had little engagement with large, incumbent businesses over the last nine months. This is a missed opportunity for them, particularly if they hold back on initiatives because of apprehension or uncertainty about the regulatory environment, as well as for us (since it limits our impact). We will therefore build a programme of proactive engagement with large incumbents, to make sure their potential for consumer-friendly innovation is not being held back by regulatory considerations. In particular, we will seek out opportunities to conduct pilot research on new initiatives.
Initiatives in train
In addition, we have in hand several initiatives that will also enhance the pro-competitive impact of Project Innovate:
Regulatory Sandbox. As set out in the Budget statement in March 2015, we are currently exploring the feasibility of regulatory ‘sandboxes’ – safe spaces in which businesses, both authorised and unauthorised, small and large, can experiment with innovative products, services, business models and delivery mechanisms without immediately incurring all the normal regulatory consequences of engaging in the activity in question. We will report the results of the feasibility study to the Treasury this autumn, publishing our report at the same time.
Themed weeks. Conventional consultation and engagement methods do not always work with innovative businesses. From September 2015, we will mount a series of themed weeks, designed to stimulate intense engagement between the FCA and stakeholders with an interest in a particular area of innovation. The first of these will be on ‘robo-advice’ – in other words, automated advice. We see the themed weeks as a valuable way of reaching large numbers all at once, learning about their problems with the regulatory system, and perhaps dispelling regulatory uncertainties or myths. This will also help us understand developments and trends in innovation.
RegTech. We are in discussions with fintech businesses, trade bodies, academics, consultancies and others to identify potential ways to support the adoption of new technologies to facilitate the delivery of regulatory requirements. The aim is to help firms to develop and benefit from new technology and comply with regulation in a cheaper and easier way. We will set out the results of our initial discussions in a report to the Treasury this autumn, publishing our report at the same time.
The Cloud. Later in 2015 we will consult on fresh guidance on how businesses can outsource data storage to the Cloud, while remaining compliant with regulatory requirements. This guidance will address concerns raised by a number of innovative businesses as they have sought to design efficient and cost-effective business models.
Call for Input on barriers to digital and mobile solutions. We published a Call for Input on 17 June 2015 to learn about specific rules and policies that are restricting innovation or that should be introduced to facilitate innovation in digital and mobile solutions for financial services. We are seeking to understand what changes may be necessary and where we need to communicate our approach better.
On 8 March 2016, we published a Feedback Statement outlining the steps we are taking to address the issues raised.
We want to capitalise on the initial success of Project Innovate to ensure we maximise its contribution to innovation that benefits financial consumers, and advances our competition mandate. We believe the enhancements summarised here will serve those ends, and we will continue to look for other ways of making Project Innovate as useful as possible.
Whether you want to know more about the Innovation Hub, want to request support or have a question about an application for authorisation or a variation of permission, you can contact us at:
Phone: +44 (0)20 7066 4488
Address: The Innovation Hub, Financial Conduct Authority, 25 The North Colonnade, London E14 5HS