Innovation Agencies throughout Europe are still looking very closely at Israel’s start-up incubation methodologies and try to adopt them to their own respective economies. FCA introduces diverse techniques, methods to cooperate with the market and with the consumers to create a consumer,- and market-friendly regulatory environment which further boosts the economy and innovation. We wonder, if FCA would reach the same position in financial regulation as Israel gained in incubation. Definitely should…
The financial sector – as we all see – is transforming into digital rapidly and even at wider spectrum. The new, often disruptive solutions mean great challenges not only to the traditional players but to the regulator as well. Educating consumers, building their trust so that they use new services is key to develop new financial culture and also to expand financial inclusion to further, still unbanked customer segments. The expected outcome could successfully be reached only through well-structured, meaningful cooperation of all the key stakeholders be it on the regulatory or on the market side.
The financial sector today needs a regulatory approach which understands market needs, technology trends, the market players’ operations, business practices, etc. Only a deliberate, forward looking, innovation and competition friendly strategy which is being carried out with flexibility in the everyday practice and diverse in the regulatory means would strengthen the economy and be able to react well to the fast technology and market developments.
We believe that the regulatory approach, the means FCA introduces with the explicit intention to boost competition, give broader space to innovation, to attract new market entrants and to leverage the benefits from the new technologies in a wider scale is exceptional and worths to follow.
Regulators in the EU and in most individual member states are lagging behind in understanding the technology, market and social development and definitely struggle with interpreting these trends into supportive regulations. The regulatory mindset, the means they use and how they use them needs to be refreshened.
We believe that in order to achieve the goals of PAD, PSD1 and PSD2 directives, which evidently represent revolutionary change in regulatory approach the regulators shall develop and apply a diverse mindset in their everyday work. They should go practical and simple to understand and work with.
Themed Weeks, Sandbox, New Bank Start-up Unit – just a few, but very smart and useful inititatives which worths to study and adopt.
Now, let’s see how the economy and the consumers will benefit from all these:
1. Interactive, customized regulatory support throughout the entire services life cycle
Such a close relationship – and colourful in tools and customized to companies and also to service segments – between regulator and market players cannot be seen elsewhere in the EU countries. The FCA regulatory support leads the market players, the new start-up companies through the whole service development and also the provisioning cycle. FCA puts great efforts to educate the companies’ management so that they understand and properly use the relevant regulations. They also benefit from such a close cooperation since they get good insight into the new technologies, their practical benefits and also the potential uncertainties in solutions being developed on those. This cooperation gives an excellent opportunity to outline a regulation which is appropriate, does not put excessive burden on the companies but still, provides the relevant security and protection for customer needs and regulatory expectations.
2. Continuous, interactive communication with the market players
Being a marketplayer we all know that understanding or interpreting regulations is not easy. Special language, different approach – sometimes far from market rationals – makes our lives challenging and also could cause huge costs which might hinder launching new products to the consumers.
FCA papers, guidelines published on different hot fintech or fintech related issues are easy to understand, they contain highly relevant information and are easy to paste into business thinking, business procedures.
Interpreting the regulation on the right way and in short time might save a lot of costs, definitely shortens the services time-to-market procedure and yet, the product will be compliant to regulations which could save the company from being penalized. Great benefit!
3. Guidelines to clearly see the regulatory aspects and implications
I’d draw your attention to a specific guidelines issued by the “New Bank Start-up Unit”. These guidelines are for new entrants who believe the best way to launch their services is through establishing a bank. Which might be the case, obviously. The guideline provides a clear mindset, a professional tool for the companies to understand in which cases they need to become an authorized bank, and what the decision making factors they should consider. Again, helping companies to make the right decisions, whithin a short time-frame though being able to foresee the consequences, potential costs and efforts they shall take results in better services, within a shorter time-frame.
4. Complex “advisory-like” support when needed and on a way needed
In the previous section I have already mentioned the New Bank Start-up Unit. Excellent example of using all the relevant tools a regulator might have to reach a definite, well-thought economic and social purpose. This case it is as Andrew Bailey, Deputy Governor, Prudential Regulation, Bank of England and CEO of the Prudential Regulation Authority said:
“The New Bank Start-Up Unit builds on the work we have already done to reduce the barriers to entry for prospective banks, which has led to twelve new banks now authorised since April 2013. These new banks are a key part of bringing innovation to the sector, particularly where there is a gap in the market – whether it is the service they provide, the customers they target, the products they sell or the technology they use.
With the launch of the New Bank Start-up Unit, applicants will now benefit from having a single place where they can get the advice and guidance they need to start a new bank and support once they are authorised.”
This Unit will operate an email/phone helpline, access to information and advice from the supervisors of the Authorities. Besides that, market players will get regular regulatory updates. They could participate on special seminars held by the regulators and by banks’ senior management leaders.
Not only the number of new entrants and scale of new services will grow, but the level of commitment from the market players’ side to operate with regulatory compliance and be open towards the regulator with their problems or questions will have further positive effect on service quality, and on security and stability as well.
Sandboxing as an incubation method is not new in the tech world, still, FCA initiative is unique in its kind.
Comprehensive regulatory approach with transparent, well structured application procedures are the basic principals. Being continuously on site, providing a safe place with real customers, real use cases to new, beta phase services will definitely have itspositive impacts with regard to
- shorter authorization, licencing period which decreases time-to-market periodhence boosts new services to reach the consumers
- knowledge sharing which could be monetized in appropriate, supportive regulation which boosts innovation and development
- less compliance costs for the companies
- better commitment to being compliant with regulations which results less fines, and so, increases consumer confidence levelChris Woolard speech on opening the Sandbox first round of applications gives good insight into the FCA approach:
What additional benefits could also be reached with these tools?
Building consumer trust – it is of vital importance in the financial services segment, as well. The regulator being so much involved in the service development, testing, piloting – even in the field testing phase raises the consumers’ confidence level significantly which will result in higher – and earlier – usage of the relevant services.
Higher acceptance rate from the user side, higher take-up rate – these all will result in higher service usage, increased willlingness to try new services.
As a whole, financial culture will improve, financial inclusion will increase and we could experience wider scale of valueadded services.
We’re very courious to see the overall market impact of the FCA practice. In a shorter term, specifically looking forward to see the first participants and the first experiences of the Sandbox since the first round of application is due today.
FinTechGroup: “Building a brave new world in digital finance”