Choosing the name for a new venture or project is often a challenging task. Considerable time is typically spent – or wasted depending on your point of view – agonising over nomenclature. Several different approaches can be taken. There’s the thumb-through-the-dictionary-and-select-something-at-random method, which admittedly can be a bit like playing a lexiconic version of Russian roulette. If that just feels far too ‘analogue’ in today’s digital world, online generators are there to make the task easier. To reduce the risk of ending up with something totally inappropriate, the use of sets is perhaps a safer bet. Apple, for example, currently labels each OS release after a Californian landmark: El Capitan, Yosemite and Mavericks being its three most recent iterations. A cursory visit to Wikipedia reveals that a veritable cornucopia of names exist, covering everything from A(pollo) to Z(ydeco), and illustrating that limits on creativity are few when it comes to finding a title. Think big. Think bold. Think outside the box. Or in the case of the UK’s Financial Conduct Authority (FCA) and its Project Innovate initiative, think boringly simple. However, a distinct lack of titular imagination isn’t indicative of a shortage of ambition when it comes to the introduction of innovative products and services to the market.
“Project Innovate, despite its inherently uninspiring name, is a great idea”
Project Innovate was first announced in May 2014. In late October 2014 the FCA officially launched its innovation hub, which operates with two overarching purposes. Firstly, it provides direct support to firms who are trying to launch products into the market that the FCA considers might be of benefit to consumers. In the twelve months since the hub became operational, 177 companies received assistance to one degree or another, which neatly illustrates the groundswell of activities that has built behind the UK fintech movement in recent years.
Secondly, the hub is at the centre of the FCA’s policymaking on innovation, and is designed to promote competition through disruption that ultimately offers new services to customers and challenges existing business models. According to Christopher Woolard, the FCA’s Director of Strategy & Competition, “there are three main strands to the policy work. There is a regular Call for Inputs that allows the industry to talk about emerging issues. There is a regulatory sandbox, where the government has asked the FCA to provide a safe space for firms to enter the market and experiment with new ideas. And there is input ‘regtech’ policy, which examines how technology can be used between regulators and firms to deliver requirements more efficiently and effectively.”
Each strand merits comment. Encouraging industry discussion on technology-related matters is a welcome development, as a broad church of parishioners from all parts of the industry ecosystem can help identify how banking can be made simpler and easier for customers. This will undoubtedly help players make the essential transition to an outside-in strategy which places the needs of account holders at the centre of activities, but without feeling as if they’re placing themselves at a commercial disadvantage by talking to peers.
The provision of a sandbox to test new products and services without the risk of censure is arguably a more significant step. It fits perfectly into the notion of a ‘fintech island’ which was mentioned in a previous FusionWire article, and is a fillip to ‘safe’ creative disruption. Crucially, firms of all sizes will be allowed to play [nicely] in the sandbox when it opens for testing proposals in March 2016, as the FCA recognises the need to engage with large incumbent institutions and software vendors as well as start-ups. Some caution needs to be exercised, as the sandbox is very much in its infancy and has yet to deliver anything of note. However, there is no reason why it cannot become a cornerstone piece in the innovation puzzle, and help bring great ideas to life at a far faster rate than has previously been the case. And with innovators and regulators working in tandem, this allows for requisite amounts of consumer protection to be injected into products and services before they reach the mass market. Ergo, everybody wins.
The identification of regtech as a separate line of industry activity is also important. In essence, it signifies the value in bringing interested parties – identified by the FCA as “fintech businesses, trade bodies, academics, consultancies and others” – together in order to support the adoption of new technologies to facilitate the delivery of regulatory requirements. If executed successfully, firms will develop and benefit from new technology while simultaneously complying with regulatory policy in ways that are both cost-effective and easier. As an example of the regtech workstream within Project Innovate, the FCA is looking at how AML compliance can be aided, supported and improved by suitable IT solutions.
Having got Project Innovate moving, the FCA needs to ensure momentum is maintained and value realised during 2016. Judging by its future plans – which involve improving the experience for new entrants using the hub, internationalising engagement, and working proactively with large existing banks – the FCA isn’t lacking ambition. As was the case with MAS in Singapore, it’s encouraging to see another regulatory body getting closer to technology-related issues: industry supervisors in other jurisdictions should pay close attention and take appropriate action. The sandbox concept is replicable, providing sufficient resources could be allocated within an NRA to support the submission and testing of proposals.
Project Innovate, despite its inherently uninspiring name, is a great idea. Many positives can be taken from its first phase, and an air of optimism is justifiable in regards to what exists today and what’s coming next. The UK regulatory environment has rarely been a place of plauditry in the past decade. The FCA deserves credit for the work performed so far. With the present Conservative government aiming to make the UK the leading fintech centre in the world by 2020, the FCA cannot afford to take its foot off the innovation pedal. Buckle up, as the journey’s going to get interesting.