Are regulatory barriers limiting innovation in digital and mobile solutions?


Focus on innovation

In 2014 the FCA launched Project Innovate to ensure that its regulatory regime supports the development of innovative products and services that can improve the lives of consumers. Acknowledging that regulatory barriers can distort competition and discourage new entrants to the market, Project Innovate seeks to identify regulatory barriers to innovation and work to resolve them without compromising the standards of consumer protection. The FCA has also been working closely with the new Payment Systems Regulator (PSR), which has a statutory objective to promote innovation in payment systems.

In July 2014, the FCA published a ‘Call for Input’ to raise questions about the difficulties the regulatory system poses for innovator businesses, with a focus on digital and mobile solutions for financial services.

The following main issues were identified by the FCA’s feedback statement in October 2014 (click here):

  • Lack of certainty about the purview of the regulatory system;
  • Regulation for digital currencies;
  • Access to bank accounts; and
  • Complexity of the FCA website.

In response the FCA:

  • Set up the Innovation Hub to assist innovative firms understand the regulatory framework and how it applies to them;
  • Supported HMRC’s call for evidence on the potential benefits of digital currency;
  • Published a statement about de-risking (click here); and
  • Launched a clearer microsite for Project Innovate (click here).

Digital and mobile solutions for financial services

With digital technology becoming integrated in all sectors of the economy, applying digital solutions has become a top priority in the public sector in the UK and EU. There are already developments on the market/about to be introduced that take advantage of digital technologies, for example:

  • Biometric readers for banking authentication;
  • Automated advice services;
  • Payment protocols based on decentralised ledgers to enable global financial transactions and other alternatives for making international payments;
  • A box in a car transmitting driving data to reduce car insurance renewal premiums.

Mobile banking solutions have also accelerated the pace of change, with the use of mobile UK banking services reported to have more than tripled from 8% in 2010 to 27% in 2014.

In September 2014 the FCA published a report on its thematic review of mobile banking and payments (click here), highlighting key areas for firms to consider when developing products and services to deliver the best outcomes for consumers. Due to concerns about the difficulties of using cloud-based solutions in a manner compliant with the requirements of the FCA Handbook (including SYSC 8 and 13), the FCA has also engaged with external stakeholders to discuss any barriers to outsourcing third-party technology solutions, including the cloud. We can expect to see further guidance from the FCA in this regard in due course,

The FCA’s ‘Call for Input’ highlights the importance of digital and mobile solutions in the financial services sector. With the FCA due to make a statement in the autumn as to its next steps, it is hoped that this will go some way in allowing businesses to take advantage of the digital revolution.