FCA Sets Sights on Regtech

Financial services are looking to regtech for help with regulatory burdens such as data reporting and know-your-customer management, the UK Financial Conduct Authority (FCA)'s director of strategy and competition said last week.

Christopher Woolard told attendees of London Fintech Week the FCA set up a hub, Project Innovate, two years ago to foster technology development. The project has initiated a number of engagements with financial service providers and technology companies, aiming to "make it easier to bring ideas into markets," said Woolard.

The project turned its attention to regtech specifically in November, when it put out a consultation. Woolard noted the FCA's idea was to say "these are some of the things  we are interested in, tell us what you think. What did the industry think about regtech? What level of importance does it place upon it? What can we do with regtech to improve efficiency and effective regulatory reporting? And also what are the views on challenges, risks and opportunities in this space?"

He said he was pleased with the volume of responses—about 350, 60% of which came from senior management or board level, and from a broad spectrum of technology vendors and financial services firms.

What the Industry Wants

"We had a lot of responses around making compliance with reporting requirements simpler. There is a huge amount of information passing between regulated and regulators every day of the week, back and forth. So [respondents asked], can you think of solutions that might have alternative reporting mechanisms, such as a shared utility? Is there scope to make this simpler, cleaner and easier for everyone involved in this process?" said Woolard. 

Respondents also wanted technology to drive efficiency, leveraging their existing data for regulatory purposes, or helping smaller firms without much capacity understand their obligations and monitor their compliance. There was a lot of interest in whether distributed ledger technology might work for compliance, for example.

The regulator could also play a role in easing the impact of inconsistencies between international requirements and regimes, respondents said.

"Some are worried about the intricacy of legacy infrastructure, particularly the larger financial services firms, and they wanted to know if there is scope for more agile systems," Woolard added.

"And, finally, a number of firms, particularly start-ups, highlighted the difficulty they face in trying to deal with the big incumbent players. Not in terms of being rivals with them, but far more about how do they get in there and get the attention of large firms. How do you get access to that environment where you can demonstrate your ideas?"

Respondents had many ideas about what the regulator's particular role should be. Not ot all of them were feasible, but nonetheless there was a clear and very strong interest in the regulator taking a role in the regtech space, said Woolard.

KYC in Focus

Woolard said the authority's priority now is know-your-customer and anti-money laundering. He said that while the FCA wants the UK to be a hostile environment for criminal activities of this kind, it is cognizant of the fact that anti-money laundering regulation can have unintended consequences that usually fall hardest on consumers.

"One of the things we want to do is try to minimize the impact on consumers and make sure it doesn't become a reason why a bunch of people could be excluded from financial services in some way.

"So one of our questions is, is this a space in which fintech or regtech can bridge some of the gaps between these objectives of making sure it works better for all consumers?"

Woolard encouraged businesses—small or large, start-up or incumbent—to engage with the FCA and Project Innovate. "We want to be able to foster world class technology and to see that benefit a much wider society," he concluded.