UK regulatory innovation: So what’s the Plan?
April 8th, 2017 / Innovate Finance / Featured Insights
By Virginia Montgomery, Hogan Lovells, London
In its 2015 Productivity Plan, the government committed to working with UK regulators to publish Innovation Plans setting out how legislation and enforcement frameworks could adapt to emerging technologies and disruptive business models. HM Treasury has now published the final form of its Regulatory Innovation Plan. The Plan covers the work of the FCA, PRA, Payment Systems Regulator (PSR) and the wider Bank of England. It looks to build on the UK’s position as a global leader in FinTech development, working towards the government’s vision of a UK financial services sector that is the most competitive and innovative in the world.
The story so far – some highlights
Actions already taken by the government to achieve its vision include the introduction of Project Innovate within the FCA and the resultant Innovation Hub and Regulatory Sandbox initiatives. The FCA also invited Innovate Finance to work with the industry to develop proposals for an Industry Sandbox, which Hogan Lovells is delighted to have been working on with Innovate Finance.
FCA and PRA to build on existing foundations
Among the FCA’s plans are:
- Working with HMT to implement PSD2, as well as its related involvement in the development of the open banking standard required as part of the CMA’s Retail Banking Market Investigation remedies package
- More “themed weeks” of intensive engagement with stakeholders interested in a particular area of innovation, the next topics being InsurTech and Blockchain
- Continuing to work with firms on the Smarter Consumer Communications initiative to improve how they communicate with consumers
- Working with government on implementation of the latest EU AML legislation to bring digital currency exchanges within the scope of UK AML regulation
- In collaboration with HMT, assessing barriers to bringing digital identity to financial services. The Plan highlights the fact that firms bringing innovative eID solutions to the market can access the FCA’s Innovation Hub
The PRA’s focus on lowering barriers to entry and expansion for new banks will continue with the on-going work of the joint PRA/FCA New Bank Start-up Unit (NBSU) to help potential new banks enter the market and navigate the initial stages of authorisation.
Another PRA/FCA focus is on RegTech, where the FCA in particular is aiming to improve compliance and reduce the cost of regulation for both firms and itself. One tool that will continue to be used for this is the collaborative event known as a TechSprint (a variation on industry hackathons).
The PSR: a catalyst for change in the payments market
Following its launch two years ago, the PSR has already made use of its ‘strong objectives’ to promote innovation and competition in the UK payments sector through measures designed to ensure both ‘competitive’ and ‘collaborative’ innovation.
The central pillar of the PSR’s competitive innovation efforts is the drive to improve the ability of small, innovative firms to access payment systems and compete more effectively with the large existing market players. This has included the issuing of general directions to improve the governance and transparency of payment systems for the benefit of all users and participants. March’s PSR annual report found significant improvement in the choice of access options for payment service providers (PSPs). Work by payment systems operators to make it easier for PSPs to become direct participants in payment systems is also yielding results; the PSR has identified up to 10 new direct participants who will enter the interbank payment systems this year.
The PSR’s activities have also acted as a catalyst for other industry stakeholders to innovate and enhance competition. The Plan gives the example of the Faster Payments Scheme’s New Access Model, aimed at encouraging a market-led competitive supply of services (eg FinTechs offering technical aggregation services).
The Payments Strategy Forum is the lynchpin of the PSR’s work to facilitate collaborative innovative solutions to improve payment systems. The Forum’s members include representatives from both industry and service-users. In 2017, the Forum will continue to contribute to the implementation work for its November 2016 Strategy, including the design of New Payments Architecture (NPA) for the UK’s three retail inter-bank clearing systems (Bacs, Cheques and Faster Payments).
Bank of England bringing innovation to wallets and systems
Among the Bank of England’s future contributions to the use of new technology will be a continuing move away from paper banknotes, with the launch of a new £10 polymer note in summer 2017 to accompany the new £5 note released in September 2016. A £20 note will follow in 2020.
In payments technology, the Bank’s work on a new blueprint for a future Real Time Gross Settlement System (RTGS) and extension of access to the RTGS to non-bank PSPs will continue apace. The new RTGS will be designed to accommodate future technological, regulatory and monetary policy developments.
In Spring 2017, the Bank will announce the next set of firms that it will be working with as part of its FinTech Accelerator, making use of FinTech innovations for central banking applications.
More on the horizon…
The government is planning to launch a FinTech delivery panel as a way to push forward on key initiatives promoting financial services innovation. The panel will be drawn from FinTechs, the government, the regulators and larger financial services firms.
Look out for further developments at next week’s Innovate Finance Global Summit when Hogan Lovells will be hosting a roundtable on Making Regulation Invisible: using RegTech to embed rules into workflow and a panel session on Markets Unchained: Blockchain and Capital Market Innovation with MIT Connexion Science and Innovate Finance co-hosting a workshop on Constructing Successful Sandboxes at which a preview of key findings from Innovate Finance’s Industry Sandbox Consultation will be published.