FCA to seek views on barriers to digital and mobile financial services innovation

Out-Law News | 26 May 2015 | 12:44 pm | 2 min. read

Businesses operating in the financial services sector will be given the opportunity to tell a UK regulator later this year about the "regulatory barriers" they face when developing new digital and mobile services.

The Financial Conduct Authority (FCA) said it will launch a 'call for input' on the "regulatory barriers to innovation in digital and mobile" this autumn.

"This will help us understand where we need to make changes, or simply where we need to communicate our approach better, because we think there are some barriers to innovation grounded more in perception than reality," Christopher Woolard, director of strategy and competition at the FCA, said in a speech last week.

Woolard said there is a digital and mobile "revolution" as consumers are "rapidly" changing the way they "engage with financial services".

"Digital and mobile channels are making a huge impact," Woolard said. "We think there is real disruptive potential in the switch to digital channels and more specifically, use of mobile."

In his speech, Woolard revealed that the FCA, through its Innovation Hub, has received 170 requests for support from businesses since the Hub launched in October 2014. He said that the regulator helped "just under half of these firms" and that the feedback suggested that most businesses it helped valued that assistance and the speed of response.

"83% of firms that responded rated their overall experience with the Hub as good or excellent," Woolard said. "89% thought the promptness of our response was good or excellent."

The Innovation Hub is part of the FCA's Project Innovate scheme. It offers businesses seeking to enter the financial services market the opportunity to flag up their plans to the FCA and obtain an "informal steer" on how to address regulatory compliance issues that their new products or services would raise.

Traditional financial services businesses also have the opportunity to apply for the FCA's assistance through the Innovation Hub when they wish to introduce either "brand new concepts" to the market or make "significant improvements" to existing ideas and practices.

Woolard said that the FCA is considering how to address financial services companies' wish to be able to test new products and services with consumers "before committing to the time and expense of becoming fully authorised" but at the same time ensure protection for consumers.

"If you are carrying out a regulated activity, you need to become authorised," Woolard said. "Only then can you sell your product to consumers. There would be risks if we changed this framework. The question for us is how do we allow for experimentation while still ensuring an appropriate degree of consumer protection?"

"There may be ways to work within the existing framework or regulation. Many businesses choose to become Appointed Representatives of other firms. Some European Directives contain limited network exemptions that are helpful for trialling new services. We want to explore how we might draw on all these options and develop a new approach that could support testing of innovations at an early stage," he said.

A survey conducted by Pinsent Masons, the law firm behind Out-Law.com, at an industry forum on the future of general insurance distribution, found that "the burden of regulation on insurance businesses as both a commercial challenge and a barrier to innovation" was an issue affecting insurers, insurance law expert Alexis Roberts of Pinsent Masons said earlier this year.

"What was surprising was the number of firms that told us that burdensome regulation was also detracting from their ability to provide the innovation that consumers want," Roberts said. "Our research shows that firms are increasingly concerned about the 'lag' between technological developments and announcements by the regulators, without which it is difficult to see how product providers and distributors could treat consumers consistently."