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Blog Post

The View From There: A Look At UK Fintech

Monday, December 26, 2016

I’m back from a trip to London to check out the fintech scene and learn how the UK is approaching fintech innovation post-Brexit. I attended the FinTech Connect Live conference, sat down with the Financial Conduct Authority (FCA), and met with innovators and others in the UK fintech industry. Here’s what I learned.

The British government believes London will continue to be a fintech leader and plans to prioritize fintech in Brexit negotiations. Interestingly, though, the FCA does not see Britain’s access to Europe as its number one attraction for innovators, arguing instead that its strongest asset is its regulatory environment. Continental Europe, the United States, Australia, and numerous other countries are emulating the UK’s example of how to regulate fintech.

At the FCA I received an update on this strategy, which is called Project Innovate. It includes a regulatory “sandbox” offering innovators a safe space for testing novel products, services, business models, and delivery mechanisms in a live environment, with partial shelter from normal regulatory risks. The first cohort of sandbox innovators is performing well and applications are strong for a second cohort early next year. The FCA has also launched a regulation technology, or RegTech, initiative, inviting TechSprint teams to compete by sharing ideas for streamlining regulatory reporting. The exciting takeaway here is that there is that the regulator itself is driving technology change to benefit all sides–consumers, industry, and government.

But will this be enough for innovators, especially as other countries vie to create attractive regulatory environments? I attended a meeting of British and European stakeholders on how Brexit will impact fintech in Britain. Leaders of several accelerator programs said they will no longer require their innovators to have a footprint in London. The innovators voiced concern, too, saying today’s globalized system make it easy to move to whatever country offers the best markets, talent, and regulatory environment. They are also seeking, and expecting, increasingly efficient regulatory design (one asked for regulatory “Lego bricks”–uniform global standards that are adaptable for each country’s unique rule).

Brexit’s impact is unknowable today, with much resting on when Britain officially notifies the EU of its departure plans and how the subsequent negotiations unfold. In the meantime, other countries will be happy to poach Britain’s innovators by offering attractive regulatory approaches.

That poaching will matter for consumers. The FCA has a proven record of robustly protecting financial customers, walking the regulatory tightrope needed to avoid stifling innovation while still assuring fairness. If some innovators move to countries with less-robust protection, it could expose consumers to problems. Meanwhile, the best innovators will develop their products to improve consumer financial health, no matter the regulatory pressures.

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