Out-Law News | 24 Feb 2016 | 5:27 pm | 3 min. read
In a speech earlier this week, Christopher Woolard, the FCA's director of strategy and competition, said the regulator is in talks with the UK government and businesses on the topic.
"We are particularly interested in exploring whether blockchain technology can help firms meet know your customer or anti-money laundering requirements more efficiently and effectively," Woolard said. "We are engaged in discussions with government and industry on this issue."
Woolard said that the FCA is keen to allow businesses to "be innovative with technology", including with regards to "managing regulatory requirements more efficiently".
Blockchain is one technology that Woolard said the FCA has recognised the potential of. He said the regulator is already working with companies that are developing new distributed ledger technology solutions via its Innovation Hub to "ensure consumer protections are being factored in".
The Innovation Hub is a central plank of the FCA's Project Innovate initiative. The Hub enables companies looking to use technology to disrupt the UK's financial services sector address regulatory compliance issues.
"The current development of distributed ledger technology has the potential to revolutionise financial services; whether it is the panacea of all ills in the financial world is yet to be seen," Woolard said. "However it’s clear that there are a lot of regulatory and consumer issues that will need to be discussed as the technology evolves. For example, how individuals gain access to a distributed network and who controls this process, along with what data security exists for users are vital considerations for us as a regulator."
"Innovation can be an iterative process and the development of a digital solution is therefore unlikely to be perfect first time round. During the phase of any digital development, it’s crucial that innovators are allowed the space to develop their solutions. The FCA continues to monitor the development of this technology but is yet to take a stance until its application is clearer," he said.
Expert in financial services and technology Yvonne Dunn of Pinsent Masons, the law firm behind Out-Law.com, said that it was good to see the FCA publicly recognise the potential of distributed ledger technology even though there are not yet many "concrete cases" of it being used in the financial services sector.
"The FCA will have a key role to play as blockchain technology develops to help those using it in innovative ways to do so within the regulatory regime and in a way that builds up trust for end users and customers," Dunn said.
In his speech Woolard also outlined plans to use its Project Innovate initiative as a tool for greater collaboration with other financial services regulators across the world. He said he plans to visit the Australian Securities and Investments Commission (ASIC) in March. ASIC has its own Innovation Hub, while regulators in Japan, Singapore and the US "have also introduced initiatives to promote innovation in financial services", he said.
"This year through Project Innovate we aim to ramp up our international engagement," Woolard said. "We are looking to have cooperation agreements in place with some key regulators to reduce some of the barriers to UK authorised firms looking to grow scale overseas and to assist non-UK innovators interested in entering the UK market."
"If we want disruptive innovators at scale we need to think about how they can expand internationally with the minimum of friction," he said.
Woolard said that more than 25 non-UK based businesses approached the FCA's Innovation Hub in the past year.
Dunn said: "Project Innovate has been a successful example of the FCA engaging with fintech start-ups to help them, but also for the FCA to get help itself in understanding their challenges. It is encouraging to see that the FCA plans to ramp up its international engagement and to seek reciprocal arrangements with its international counterparts which will be positive for UK start-ups that want to scale up through international expansion and non-UK companies who want to come into the UK market."
Woolard said that the FCA had received 413 requests from businesses for support via its Innovation Hub. The regulator provided support in 52% of cases, he said. Approximately 30% of the companies it has supported have won authorisation to operate or are currently going through the authorisation process, he said.
Woolard said that the FCA will change the authorisation process for companies it supports via its Innovation Hub.
"This year we want to make Project Innovate’s service work end-to end," Woolard said. "Firms that have received initial support from the Hub will have their applications handled by a specialised Project Innovate authorisation process. After authorisation we will provide dedicated supervisory support, normally for one year."
The FCA has outlined plans to expand on its Project Innovate initiatives by setting up a new "regulatory sandbox" to help companies test "innovative products, services, business models and delivery mechanisms" in an environment in which regulatory exemptions apply. In November last year it also outlined its support for the adoption of regulatory technology (regtech) by financial services businesses to help "facilitate the delivery of regulatory requirements".