Mueller Jackson
Jackson Mueller
Associate Director, Center for Financial Markets
Jackson Mueller is an associate director at the Milken Institute's Center for Financial Markets. He focuses on fintech, capital formation policy and financial markets education initiatives. Prior to joining the Institute, Mueller was an assistant vice president at the Securities Industry and Financial Markets Association (SIFMA), where he focused on...
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The UK FinTech build-out 2.0

By: Jackson Mueller
April 01, 2015

Earlier this month, UK Chancellor George Osborne presented his budget to Parliament, and it includes a number of initiatives aimed at supporting the financial technology (FinTech) sector. He first announced these initiatives back in August, as he detailed the UK’s approach to supporting FinTech. In the months since, the UK Government, and in particular the Financial Conduct Authority (FCA), took significant steps to understand the FinTech space in order to craft responsible policy that would enable innovation to flourish. These efforts are especially worth noting because the UK was one of the first countries to publicly and actively support the FinTech sector, which generated £20 billion in revenue in 2014 and supports roughly 135,000 workers in the UK.

Among the trove of documents unveiled during the budget release included a document outlining how the UK government has and will continue to promote competition in banking, the importance of data sharing and open data in banking, and a UK Government Office for Science report providing recommendations to the government for making the UK a global FinTech hub. I’ve identified a few of the major provisions contained in the budget, based on the four verticals that we have covered in the past.

Digital Currencies: The UK government intends to apply anti-money laundering regulation to digital currency platforms, to the praise of bitcoin enthusiasts. On top of supporting additional research on the opportunities and challenges for digital currency technology and a £10 million increase in research funding towards this effort, the UK government also plans to work with the digital currency industry to develop voluntary consumer protection standards. 

Payments: Importantly, today the Payment Systems Regulator (PSR), a subsidiary of the FCA, began operations. Like the FCA and the UK’s Prudential Regulatory Authority (PRA), the PSR has a statutory objective to ensure competition, in this case within the payments space, to ensure that non-bank players, including FinTech firms, can compete and gain access to the marketplace in a fair and transparent manner. Industry collaboration is also essential, with the PSR looking to establish a Payments Strategy Forum that would bring incumbents and new users into the same room, to develop strategic priorities for the development of the payments system.

In addition, the PSR recently established its Statutory Panel, an independent body comprising individuals and businesses that will inform the PSR as it shapes its regulatory initiatives, helping ensure that competition and innovation continue to thrive. The PSR will also collaborate with the FCA’s Project Innovate, which helps businesses offering innovative services and products to navigate the current regulations, with the goal of identifying and removing barriers to entry for pro-consumer innovations. The PSR has also established memoranda of understanding with the PRA, FCA, the Bank of England, and the Competition and Markets Authority (which seeks to promote competition within and outside the UK) to establish how the PSR will engage with other regulatory institutions.

Online Finance and Investment: One way the UK government is working to support non-bank lenders is by pushing for legislation to require banks to share credit data of small and medium-sized enterprises (SMEs), along with the reasons they were declined financing. This is part of a bid to make the lending space more competitive, while opening up additional avenues for SMEs to seek financing.

Big Data: The UK government is also promoting a more open and standardized approach to Application Program Interfaces (APIs) of UK banks. Most banks have distinct APIs that are unable to “talk” with each other and therefore make it impossible for customers, to make accurate comparisons of financial products. This effort could provide FinTech firms with substantial opportunities, as APIs will allow such firms “to make use of customers’ bank data on their behalf and with their permission in innovative and helpful ways.” The UK anticipates releasing a more detailed framework for such a standard by the end of the year.

Looking Forward
You can expect the UK Government to play an even greater role in supporting FinTech innovation and development in the years ahead, spurred in part by the fact that FinTech investment in the region is the fastest growing globally. The UK Government Office for Science offered 10 recommendations to help make the UK a world leader in the sector. One of the most important recommendations is the formation of a ‘FinTech Advisory Group’ with responsibility for helping inform government and regulatory policy; developing initiatives to spur the creation of new technologies and services; encouraging research councils, including Innovate UK, to contribute to FinTech research; and monitoring for emerging risks and threats in the FinTech space.

Additional recommendations included the use of UK Trade and Investment in the promotion of the country’s FinTech sector globally, exposing students in their curriculum to the FinTech industry, developing regional FinTech hubs outside of London, using pilot programs to test new innovations to ensure they don’t jeopardize the markets or consumer behavior, and automating regulation (effectively called ‘RegTech’), with big data playing an important role.


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