UK committed to innovation in financial services

The UK financial services sector's key government bodies have lined up to re-emphasise the UK's market-leading status for innovation.

Nikhil Rathi, Chief Executive of the FCA, delivered a speech last month pointing out that the UK's success in financial services innovation has been enabled by regulatory open-mindedness.

The UK was the first country to launch a regulatory sandbox, which allows innovative ideas to be trialled safely with real customers before accelerating them to market. Mr Rathi highlighted the success of the sandbox, which has led to products reaching the market that offer new ways to pay, insure and access advice. Of the 137 firms that have now passed through the sandbox, over half successfully completed their test. Even where the tests didn't go as planned, they provided valuable intelligence about what works and what doesn’t, without risk to consumers or markets.

One of the key themes to emerge from the Kalifa Review of UK Fintech, the review commissioned by the UK Government in 2020, was scale. While the UK has proved a desirable location to start a Fintech business, the Kalifa Review acknowledges that there are challenges when it comes to scale. Therefore, to build on the success of the sandbox, the FCA is taking forward the Kalifa Review's recommendation for a market-leading "scalebox" to support firms focusing on scaling innovative technology.

It is not yet clear what package of measures will be included in the scalebox, or what the criteria will be to participate in it. However, the Kalifa Review indicates that the scalebox would be focused on measures to support regulated firms in their growth phase. This includes the creation of a regulatory "nursery" by autumn 2021, with a view to creating a period of enhanced oversight for newly regulated firms as they adapt to their regulatory status.

Enhancements will also be made to the sandbox to allow year-round applications, rather than through time-limited cohorts. In addition, the piloted digital sandbox, which supports innovation at the 'proof of concept stage', will be given permanent status.

While the regulatory sandbox has proved popular amongst start-ups and the FCA’s model has now been replicated in numerous jurisdictions, it will be interesting to see how the scalebox compares in delivering innovation as it develops over time.

Contributor: Ben Woof