FinTech Supervision in the UK
Image source: https://thefintechtimes.com/
Just as the UK is the financial centre of the world, it is also the leading FinTech capital, with increasing Fintech activity taking place across the financial services sector. In 2014, the Financial Conduct Authority (FCA) launched Project Innovate, aiming to encourage innovation in financial services in the interests of consumers. The FCA’s approach to innovation has been imitated abroad and is widely credited as a significant factor supporting the strength of the UK FinTech sector. The Bank of England has launched a FinTech ‘accelerator’ in 2016, in order to gain insight into FinTech products, concepts, firms and to give FinTech firms insight into the work of the Bank. FinTech activity is spread across the UK with notable hubs in Edinburgh, Leeds, and London. The sector has now grown from its disruptive roots into an industry in its own right.
The government wants the FinTech industry to further prosper and therefore developed a plan in March 2018 on how to foster the creation of start-ups and further development of already present market participants. This initiative was called “Fintech Sector Strategy: Securing the Future of UK Fintech”. It basically aimed at creating more competition in the market to foster its growth. Simultaneously it had an objective of establishing “Cryptoassets Task Force” which was a joint collaboration of HM Treasury, Financial Conduct Authority, and Bank of England. On 30th July 2018 in accordance with this initiative, there was published a report outlining UK’s approach to cryptoassets and distributed ledger technology in financial services. Another peculiar innovation is “Robo-regulation” which aims at easing compliance requirements for the market participants. Other measures include introducing a set of industry standards to facilitate the partnership between FinTech firms and existing banks, as well as the creation of “shared platforms” to aid new and small FinTech firms in setting up their systems. Overall, the UK has the strongest FinTech policy environment, with the most supportive regulatory regime. The strength of the UK policy environment is due to the supportiveness and accessibility of the Financial Conduct Authority (FCA), effective tax incentives and numerous government programmes designed to promote competition and innovation which indirectly support FinTech.
Per the Department of International Trade in the UK, there are more than 1,600 unique FinTechs (including solely software solutions and credit institutions), with most of them specialising in the payments services. Based on an approximate and top-down view of the UK FinTech sector, the industry currently generates around EUR 22 billion in revenue annually, with the payment sector representing 67%. The outlook of the UK banks towards Fintech sector changed and they see it now not as a disruptor, but rather as a complementary sector to their main area.
The UK was one of the first countries who transposed PSD2 into their legislation. There was no delay in the implementation of this directive and no delays with the reauthorisation for market participants. The FCA notified companies half of a year in advance about upcoming changes and hence allowed them to prepare.
The entity which is responsible for the authorisation and supervision of PIs and EMIs is FCA. It is recognised as one of the most lenient and cooperative regulators in the world. It allows for the market participants to do business and clearly outlines the requirements which will be imposed. As such, there are no uncertainties with regard to the actions which should be taken. The webpage of the FCA contains numerous guides on adherence to the requirements. From all regulators in the EU, FCA has granted the most licenses to PIs and EMIs. Currently, there is a total of 141 EMIs, 21 Small EMIs, 372 PIs, and 517 Small PIs.
The application for the license is submitted through the online system “Connect”. A large amount of documentation must be drafted for licenses, including a full business plan, a detailed programme of operations, risk management plan, business continuity plan, etc. The price of authorisation for PI ranges between £1,500 or £5,000 depending on the scope of activities which will be undertaken. For EMI the price stands at a flat rate and stands at £5,000. The FCA has 3 months to deliver the decision on the authorisation or refusal of such. Usually, for well-prepared applications, it takes around 3-6 months to obtain a PI or EMI license, depending on the completeness of the application and the workload of the FCA.
The most communication is conducted through the online system called “GABRIEL”, through which PIs and EMIs may submit reports and other information to the FCA. The reports to the system must be submitted once a year. The FCA performs an audit of authorised institutions depending on the necessity for such a review. It may happen during the first year of operations, as well as only in a couple of years. The reason for it lies in the fact that there is self-reporting requirement and if there are no complaints on the institutions it means that they are performing well.