By Daniel Lanyon on 20th June 2019
The FCA says technology is dramatically changing the markets it regulates and blurring regulatory boundaries in a new report into its activities.
The regulator of financial services in the UK, the Financial Conduct Authority (FCA), has released its latest ‘Perimenter Report’ where it outlines the boundaries of its powers. More specifically this determines which firms need authorisation and what level of protection consumers can expect when buying financial services and products.
The report deals with the regulator’s attitude to the broader narrative of disruption to finance as well as revealing something new: the regulatory lines are becoming increasingly blurred as technology drives change, and the FCA is concerned.
For several years the FCA has mainly been playing catch up with the alternative lending market, whilst also wanting to stay on the front foot of innovation with the rapid growth of disruptors.
For example, the peer-to-peer lending market only began to be fully regulated in the past few years while the FCA’s Project Innovate has scaled and expanded to its Regulatory Sandbox's new annual cohorts.
Now, the story is beginning to centre more on the increasing approach of very large technology companies entering the financial services sphere as well as fintech start-ups.
Amazon recently is said to be making a number of moves to increase its stalling lending business, Apple announced its credit card launching in conjunction with Goldman Sachs and, of course, there’s Facebook’s Libra ‘crypto currency’.
“While fintechs are financial services firms aiming to use technology to deliver products in a more efficient and consumer friendly way, technology companies themselves are increasingly pushing into financial services, ” the FCA said in the report.
It appears the FCA sees this as a pertinent area for new regulation.
It says: “Technology is dramatically changing the markets we regulate, and having a major impact on the perimeter. New challenges are created as financial services are increasingly delivered online and we have had to adapt... to keep pace.”
Later on, the report adds: “We know that technology companies entering the financial services sphere are likely to have a major impact on both firms and consumers in the UK, even if their activities fall outside the perimeter. We will keep this under constant review.”
It says that with large technology companies, such as social media platforms and online retailers, considering or already making inroads towards providing financial services in various ways there is a new front emerging.
“Some of these have never previously engaged in financial services activities. The market power of these companies could create a significant impact on financial services Consumers. This impact could be both from providing regulated activities, such as payment or banking services, and from other activities outside the regulatory perimeter,” it said.
“The boundary between providing mostly unregulated technical infrastructure to deliver financial services and providing regulated activities is increasingly narrowing. This also raises questions around whether financial regulators have the necessary tools and techniques to effectively oversee those organisations, ” it added.
Andrew Bailey, Chief Executive Officer of the FCA, said technology and the use of data are increasing the speed of change in financial services markets.
"New products can be launched and sold to large numbers of consumers very quickly. Innovative assets and products, such as cryptoassets, may become more common in future, and the perimeter is likely to be tested more often."
In a separate press release, he added: "We appreciate that the current perimeter is complicated. The boundary between which firms and activities do or don’t require regulation, is being constantly tested. The recent behaviour of some firms operating around the perimeter has caused serious consumer harm and reduced trust in regulated financial services markets."