Out-Law Analysis 2 min. read

FCA's Project Innovate will help on journey to digital maturity, say experts

FOCUS: Regulator the Financial Conduct Authority (FCA)'s attempts to find out how well regulation is working for innovative financial services product retail is a welcome development and it will help firms achieve full digital maturity.

Digital technology is transforming retail investment businesses as it is almost every industry. Retail investment businesses are a long way from full digital maturity, but the FCA's 'Project Innovate' will help them on that journey

Project Innovate will gather the views of firms on innovation and regulation, and will gather information about their plans. The FCA has already published information about its consultation and these views will inform Project Innovate, the FCA said.

Project Innovate is designed to help non-authorised firms, particularly innovative start-ups, to understand the authorisation process. Martin Wheatley, the FCA’s chief executive, has described Project Innovate as “... one of the most important pieces of work currently emerging at the FCA” and said that “it’s an imperative for regulators to be standing on the right side of progress.”

An important part of Project Innovate will be an ‘Innovation Hub’ within the FCA’s policy team, which the FCA has said will provide firms with expertise to assist in advising on compliance issues as and when innovative product ideas are forming and new business models are being proposed. It will also collaborate with relevant stakeholders to identify areas of financial regulation that need to adapt to new technology or broader change.

The FCA said that the project could result in “... changing requirements where needed to foster innovation in the interests of consumers” and that “[r]ule changes, guidance and waivers can all (within the constraints of EU law) play a part in meeting this challenge.”

Project Innovate therefore gives businesses operating in the financial services sector an opportunity to advocate regulatory change that supports innovation. If it proves effective, the regulator’s expectations as to how firms can adequately address digital compliance risks may become more readily apparent.

As it is currently at an initial stage, firms may want to raise any concerns they may have about the effectiveness of the approach the FCA is taking towards fostering innovation. Financial business may want to ask:

  • is it helpful for the FCA to establish a unit encouraging businesses to discuss innovative, but highly likely commercial sensitive ideas and trade secrets as and when they arise?
  • what assurances will businesses be given that they will not be put at a disadvantage in terms of delays in bringing innovative products to market by engaging in this process?
  • while mandatory involvement is not being proposed, will firms that do not engage with the process come under greater regulatory scrutiny?

Like all consultation processes, investing time and resources into engaging at the policy formation stage may help mitigate the risk of guidance and regulation developing in a way that is unfavourable to specific business or market needs.

John Salmon and Luke Scanlon are technology and financial services experts at Pinsent Masons, the law firm behind Out-Law.com. This article first appeared in a white paper by Pinsent Masons addressing different aspects of the FCA's consultation.

This article first appeared in a white paper by Pinsent Masons addressing different aspects of the FCA's consultation. You can also see our analyses of retail investment advice; 'Project Innovate';  digital technologysocial media and financial advice, the barriers to simplified advicepensions product advicethe FOS as a barrier to innovation, and local authority duties to advise on social care funding.

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