The FCA's regional FinTech engagement

Speech by Christopher Woolard, Executive Director of Strategy and Competition at the FCA, delivered at Leeds Digital Festival.

Christopher Woolard

Speaker: Christopher Woolard, Executive Director of Strategy and Competition
Location: FinTech North, Leeds
Delivered on: 26 April 2017

Highlights:

  • Project Innovate aims to tackle regulatory barriers to allow firms to innovate in the interest of consumers. Demand from firms for our support continues to be high.
  • As a forward-looking regulator, we are constantly evolving our approach. To reflect the growing reach of our work, Project Innovate is now entering a new phase.
  • We see the emergence of regional FinTech hubs especially in Leeds / Manchester and Edinburgh / Glasgow
  • We are committed to support the emergence of these hubs by offering more and better local assistance

Note: this is the speech as drafted and may differ from delivered version.


I'd like to thank Whitecap Consulting, Leeds Digital Festival and Dr. Chris Sier for inviting me to speak today. Thank you also to all those who have worked to organise this event.

Today I’d like to speak to you about the FCA’s approach to innovation and give, in effect, part two of a speech that I started at Innovate Finance Global Summit in London a fortnight ago. I wanted to begin by restating some important points about why we as a regulator care about innovation and our proposed next steps – in particular our new focus on supporting the development of FinTech Hubs around the UK – including in Leeds.

Our approach to innovation

To start with my first point – why do we as a regulator care about innovation?

The FCA has a strategic objective in law to make markets in financial services work well. To do that we look at the integrity of markets, consumer protection and have a duty to promote competition in the interests of consumers.To start with my first point – why do we as a regulator care about innovation?

Innovation arguably fits into each of these three categories but it perhaps sits most comfortably within the third one – promoting competition in the interests of consumers.

And we do a number of things in this area - market studies that take a fundamental look at how markets are operating, we enforce competition law, and review our own rules where they unduly inhibit competition. We also promote innovation.

Competition and rivalry takes place through a number of possible routes. It could be new start-ups challenging incumbents. Or those large incumbents working in partnership with innovators to challenge the status quo. Or, ideally, a healthy mix of the two.

We believe regulation has a part to play in making sure the right conditions exist for that competition.

The FCA’s Project Innovate

In order to support the emergence of more innovation and competition in the markets we regulate, back in 2014 we launched ‘Project Innovate’ with the aim of helping firms tackle regulatory barriers to innovation, be it through clarifying regulatory expectations, examining our own rules or enacting policy changes, to give them space to innovate in the interest of consumers.

Project Innovate has several different strands. For example, since its inception, it has assisted 358 firms from 720 requests for support including 95 informal steers. Of the firms that we have supported, 29 are now authorised and a further 11 have applied for authorisation.

And our ‘Regulatory Sandbox’ was the first of its kind in the world.

The regulatory sandbox allows businesses to test innovative products, services, business models and delivery mechanisms in a live environment. We’ve now completed the second round of applications for testing and demand for this support is on the up,

We received 77 applications for the second cohort of our sandbox, more than applied for cohort one. And we have accepted 31 of these applications for testing, nearly double the number of firms we accepted for our first cohort six months ago. That means more innovative firms, trialling more innovative propositions to bring to the market.

As part of Project Innovate we also support the development of RegTech – a subset of FinTech that focuses on technologies that may facilitate the delivery of regulatory requirements more efficiently and effectively than existing capabilities. We have now held a number of successful ‘TechSprints’ (more commonly known as hackathons), bringing together market participants together to work collaboratively on shared challenges to assess and solve important problems in financial services.

What's next?

But we also need to keep evolving as we do that. So what’s next for us? In a way, our journey has mirrored that of the firms we support: from start-up to a more established enterprise. Over time, we want some of what we do in our innovation work to become the norm in how we operate.

In my speech to the Innovate Finance Global summit earlier this month, I outlined a number of priority areas for the FCA’s innovation work for the year ahead.

These include expanding the scope of our Advice Unit which currently assists firms developing automated advice models in the investments, protection and pension space. Its scope will now be broader, taking in firms within the mortgage, general insurance and debt sectors, as well as firms that want to provide guidance instead of advice.

I announced that we would do more to lead the conversation about emerging trends and innovations and we have now launched an open debate on the risks and benefits of Distributed Ledger Technology which I encourage you to engage with.

And I announced our plans to expand our focus internationally, recognising that innovation is a global business and restating our commitment to supporting innovation on a global scale.

In the last few months alone we’ve signed cooperation agreements with colleagues in China, Japan, Canada and Hong Kong.

However, working with other regulators internationally, we also want to build a common understanding of the principles of good innovation, working through bodies like the G20 and IOSCO. To this end, we hosted the inaugural FCA International Innovate Seminar a fortnight ago with 90 plus regulators from 56 jurisdictions around the world in attendance.

We believe this can benefit both stronger international co-operation, and help secure the long-term future of the industry.

However, I’d like to bring us closer to home for the rest of my remarks, with the announcement of our intention to do more to support the emergence of FinTech hubs across the UK.

Regional

Historically, we have seen most of the emergence of FinTech predominantly within London. Globally, it has some huge advantages of finance, technology, government and regulation coming together in one place.

But these ingredients mean this phenomenon can spread far beyond London. We see real potential beyond London for a further wave of innovative firms. And this will be the focus of the rest of my speech.

These ingredients mean this phenomenon can spread far beyond London. We see real potential beyond London for a further wave of innovative firms.

We don’t see this as London versus the rest of the UK. We’ve a history of working with specific centres of expertise, like Cambridge, and have worked with firms all around the UK through the Innovation hub.

The UK has many areas of exciting developments from big data in Liverpool to robotics in Bristol. We will work with as many organisations in as many locations as we can.

We’re especially interested in areas where ‘Fin’ and ‘Tech’ collide, that is, areas that have both strong financial centres and a technology presence, often backed by strong relationships with local universities.

We’ve mapped these and we see two specific locations where we think we can add value to emerging hubs – namely in the Edinburgh-Glasgow corridor and the Leeds-Manchester area.

There are further reasons to believe these two areas are promising opportunities:

  • In Scotland, the Scottish Financial Enterprise and Scottish Enterprise are jointly working on a FinTech strategy for Scotland, reporting into a committee chaired by the First Minister
  • In Leeds, the development of a FiNexus Lab – a collaboration between local government, industry and central government – will be key to creating a fertile ground for FinTech firms to grow
  • In Manchester alongside the strong financial sector and growth in digital activity we see the opening of facilities like Barclays Rise and the Vault

Already we are seeing progress. In our first sandbox cohort, around two-thirds of our firms were from London or London-based with very few from other parts of the UK. This time the proportion of firms in London is down to just over half with more regional representation.

As an example of the type of innovation we have seen from outside of London, I wanted to talk to you about a firm we are working with as part of cohort 1. DISC Holdings is a start-up working with the Department for Work and Pensions. It uses blockchain technology to enable those on Jobseeker's Allowance or other government benefits to pay emergency bills through an app.

We’re especially interested in areas where ‘Fin’ and ‘Tech’ collide, that is, areas that have both strong financial centres and a technology presence, often backed by strong relationships with local universities.

From a financial access point of view, this is a potentially beneficial development as it enables a section of society for whom traditional bank accounts may be unsuitable, to access to a payment system. This could benefit a great number people.

Our experience with the Sandbox has shown that we are willing to support a breadth of firms. Whether that be a well-established organisation trialling a new way of delivering its services or, as in the example above, a regional start-up trialling a completely new product with new technology.

So how can we help support regional FinTech hubs?

How can we help?

Over the last few months I’ve spent a fair amount of time talking to key stakeholders in these regions and asking that exact question. I’ve met Louise Smith, Dr. Chris Sier & Claire Braithwaite – FinTech Envoy for Scotland and Envoys for the Northern powerhouse respectively.

I’ve spoken to representatives from Leeds City Council, Leeds City Regional Enterprise Partnerships and the Manchester Inward Investment Agency. And crucially, I’ve met the innovators and firms who will make this all happen.

The story I’ve heard, from many such stakeholders, is to bring the regulatory support we offer on the road – make it easier for firms considering new innovations to get advice or informal steers from the regulator.

The typical response I’ve had from across the UK is “we have the technology, we’ve engaged firms and VCs, we have a lower cost of doing business, we have supportive local government, we have world-class universities and research, but we don’t have the same access to regulatory support.” Whilst I’d never claim it’s the most important piece, it is an important ingredient for start-up firms and inward investors.

So that is what we intend to deliver. We will work with the local authorities, development partners and firms in those locations, as well as the Scottish Government and the Treasury's digital envoys. Our aim, as for the wider work we do, will be to encourage the emergence of more innovative firms, whether home grown or inward investors.

This is all about breaking down barriers. Where firms have to travel great distance or can only receive the support they need over the phone, it acts as a barrier to engaging. We are seeking to make it as easy as possible for firms to engage with the regulator.

This is all about breaking down barriers. Where firms have to travel great distance or can only receive the support they need over the phone, it acts as a barrier to engaging. We are seeking to make it as easy as possible for firms to engage with the regulator.

We are no strangers to this kind of work. The FCA has an existing regional programme of events ‘Live & Local’ – a programme of positive compliance sessions as well as surgery sessions for smaller financial services firms. Live and Local has been UK-wide and this year aims to speak to 500 delegates in each of the 12 regions across the UK.

Today, as part of the Leeds Digital Festival, we are holding our first local open sessions. These sessions seek to ensure that genuinely innovative firms can receive the regulatory support they need more easily, no matter where they happen to be in the country.

My colleagues Christopher Davies and Paul Worthington are in a meeting room just outside this hall.

Closing remarks

I hope that has given you a feel of our commitment to developing FinTech hubs in regions such as Leeds.

We want to get to a stage where regardless of where a good idea is conceived, it has an equal chance of coming to fruition. This is not about picking winners – there will be good ideas and bad ideas from every part of the UK – but ensuring as level a playing field as possible across the country.

The great thing about innovation is that it doesn’t discriminate – brilliant ideas can come from anyone, anywhere, at any time. And we want to ensure that we can best support that innovation wherever that happens to be.

So talk to us. As we have done throughout our innovation work, we expect to experiment and evolve along the way as we learn. We will do what works.