The Financial Conduct Authority (FCA) has unveiled an ambitious new business plan which outlines a renewed mission to not only burnish the authority of the regulator, but to also better navigate “technological change” in the financial services industry.
The team at Recordsure, and its sister company TCC, whose team includes former FCA regulators, welcome the new business plan and applaud its clear vision.
Notably for our clients, the FCA is seeking to play a cross-sectoral role, including the promotion of “competition and innovation” in the space of RegTech. The Business Plan makes clear that the FCA’s approach reflects an awareness of RegTech’s potential, stating “‘RegTech’ technology that makes it easier for firms to comply with regulation – can significantly help both regulators and the regulated.”
In order to achieve these aims, the FCA intends to foster more dialogue with “the academic community and technology industry contacts.” The regulatory body will “will engage firms and other market participants on the challenges we identify, both experienced by the FCA and by firms, and seek collaboration to develop responses to those challenges.” This is an encouraging intention, but the FCA will need to be more structured in its engagement of the RegTech community in order to truly drive innovation.
To date, the FCA’s commitment to RegTech has been limited, and has fallen short of a dedicated programme. The FCA Business Plan cites two existing initiatives as the extent of its planned outreach to RegTech leaders. The first is the Innovate: RegTech program, through which the FCA has co-hosted two Tech Sprints, which “bring market participants together to work collaboratively” in a hackathon type event. The second, is the FCA Regulatory Sandbox which has enabled UK FinTech businesses, primarily consumer-facing, to “test innovative products, services, business models and delivery mechanisms in a live environment.”
While RegTech was highlighted as an area of interest at the time when the sandbox was launched in November 2015, there have been just a few compliance-focused solutions tested in the two cohorts welcomed into the sandbox to date. Taken together with just two convenings of the RegTech-focused Tech Sprints, it is clear that the FCA could do much more to support RegTech as a critical part of its long-term commitment to improve conduct and compliance in the financial services industry.
Importantly, there is significant demand for RegTech solutions from within financial services. In a survey conducted as part of Thompson Reuters’ 2016 Cost of Compliance report, 52% of compliance officers reported that “RegTech solutions are impacting how they manage compliance at their firm.” This proportion is only set to grow as companies seek more efficient and cost-effective ways to manage compliance with upcoming regulation. A notable 67% of compliance professionals expect the costs of senior compliance staff to increase in 2017. RegTech solutions can help keep those costs in check by giving each compliance officer more powerful tools with which to exercise oversight.
The FCA must seize on its unique position as the financial regulator based in the global capital of FinTech and RegTech innovation. In order to achieve its own stated outcome of driving “increased interest and innovation in RegTech within the financial services industry,” it needs to position itself as a key venue where RegTech innovators and adopters can have focused, technical discussions about how technology can help address the complexity and costs associated with the current regime of financial regulations.