FCA sets out fertile ground for fintech innovation

The fintech sector continues to grow at a rapid rate. According to a PWC report, which explored how the sector is shaping financial services around the world, over USD 50 billion has already been invested in roughly 2,500 fintech companies since 2010.  And investment is expected to accelerate to over USD 150 billion over the next three to five years.

But while the value delivered by innovative technology companies in financial services has become abundantly clear, particularly in areas such as blockchain, data analytics, machine learning and peer-to-peer trading, the industry also requires a flexible regulatory framework that facilitates growth and innovation – rather than stifling it.

As Caroline Binham notes in the Financial Times, it is an issue that the FCA appears to be handling well. In a separate EY report, the UK is singled out for its friendly regulatory stance — topping the global survey as the most fintech-friendly jurisdiction — closely followed by California and New York. The EY report recognised the progress the UK has made in securing a competitive advantage against its rivals, stating; “The UK benefits from a world leading fintech policy environment, which stems from supportive regulatory initiatives, tax incentives and government programmes.”

Clearly, a number of FCA led initiatives designed to promote innovation and market competition appear to be paying dividends. One of the most prominent examples, the ‘regulatory sandbox’ outlined in 2015 as part of Project Innovate’, enables firms to test products for compliance purposes at an early stage in order to fast track the adoption of financial technology by the market.

All this is encouraging a dynamic sector to grow further. As Matthew Hodgson, CEO of Mosaic Smart Data, noted in an article on fintech investment earlier this year, “London is almost perfectly positioned at the intersection of finance and technology. In the last 24 months, the Capital has acted as a hotbed for venture capital investment for a variety of fintech firms pioneering new technologies designed to disrupt traditional business models, but also to enhance existing ones through collaborative partnerships with established financial services providers”.

But amidst competition from tech hubs in Silicon Valley, Berlin, Hong Kong and Singapore for fintech investment and top talent, the need to provide an attractive ecosystem for new and rapidly evolving companies is not just optional, but obligatory.

As Fintech Focus noted in a piece exploring fintech investment in Asia Pacific, the region has benefited from a massive jump in financial technology investment, rising from USD 880 to nearly USD 3.5 billion in the first nine months of 2015. All this represent a serious challenge for London’s fintech scene.

While London remains ahead of its peers in the race to provide fertile conditions for innovation and growth, the threat of global competition means the capital must continue to maintain its creativity in order to retain its crown.

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