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Sometime this Autumn, the FCA will be introducing its new ‘regulatory nursery’ in order to push innovation in financial services by creating a period of greater oversight and providing additional support for financial technology (fintech) firms post-authorisation.

But what does this mean for fintechs just entering the market, and what else is the financial watchdog doing to support the future of fintech moving forward?

Ongoing support for innovation in the financial sector

The proposal has come in answer to the Kalifa Review’s recommendation for a ‘scalebox’ to provide extra support to growth stage fintechs. Being taken forward as part of Project Innovate, a scheme launched in 2014 by the FCA to promote digital innovation in financial services, the new initiative is set to further bolster the scaling up of the fintech sector.

Speaking at the recent UK Fintech Week, the FCA’s CEO Nikhil Rathi acknowledged that there is currently nothing to differentiate firms that have recently gained regulatory status from those with a long track record.

The planned ‘nursery’ will not only enable the FCA to keep in close contact with newly authorised firms to offer support where needed but also allow the regulator to ‘intervene earlier to steer firms in the right direction.’

Building on the success of the FCA sandbox

Another key element of the Project Innovate programme is the regulatory sandbox, which provides a platform for fintechs to test innovative propositions with consumers in a controlled environment and under the FCA’s supervision.

Since its launch in 2016, the FCA has supported over 500 highly innovative financial technology firms, around a third of those who applied, with 137 having passed through the sandbox.

In addition to the new regulatory nursery, the FCA has announced that it will begin allowing year-round applications for the sandbox, which is currently only a quarterly invitation. This will include enhanced advertisement for the support the regulator offers to firms looking to expand their innovative offering.

One step towards this objective will be to connect growing fintechs with the FCA’s international peers through the Global Financial Innovation Network (GFIN), which today encompasses over 60 organisations.

By fostering improved interaction between innovative firms and regulators through this network, the FCA hopes to ‘support scaling firms’ entry and growth in other markets and further develop cross-border testing of innovative products and services.’

Enforcing better protection for consumers online

As part of his speech at the UK Fintech Week event, Rathi also touched upon the continuing drive to better protect consumers online.

Whilst he reiterated that the government has a major role in enforcing this, Rathi sent a clear warning to businesses engaged in the digital marketing of financial products and services.

In the wake of the UK leaving the EU, the regulator is looking to reverse these firms’ exemptions from the financial promotions regime which expired on the 31st of December 2020.

Rathi commented: ‘If [social media and online search firms] choose to display and profit from adverts for risky – and in some cases fraudulent – investments, they should also comply with financial promotions rules.’

This follows a study conducted in March by the regulator, which revealed that there is a new, younger and more diverse group of customers investing in high-risk investments, who rely on the likes of YouTube and social media for guidance.

Striking a balance between innovation and regulation

It is clear that the FCA has big ambitions in the near future as it strives towards its goal to become a more efficient and effective regulator in addressing consumer harm.

In tandem with supporting further innovation within the industry, the FCA is also looking to establish a ‘level playing field’ of competition between new market entrants and long-standing financial services providers. All with a view to delivering superior and cheaper products to customers.

To further strengthen its ability to reach these key objectives, the regulator is honing its internal functions as well as making strategic new appointments such as Sacha Sadan, who will take up the mantle of Director of Environment Social and Governance (ESG).

With financial innovation being a key cornerstone to the UK delivering on its promise for a net-zero economy, it will be interesting to see how these new initiatives unfold over the coming year.


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Written by

Alexandria Claypole

As Content Marketing Executive at Ideagen, Alex delivers insightful and actionable content to help organisations worldwide better understand the intricacies of the auditing, risk and compliance world. With strong roots in the technology sector, Alex is committed to advocating software solutions that support businesses in both achieving and exceeding their objectives.