The FCA has published a speech made by its chief data, information and intelligence officer, Jessica Rusu, at Money20/20 focusing on the role of innovation in regulation, technology and the ‘Digital Revolution’ and the FCA’s strategies to meet its statutory objectives (to protect UK consumers, ensure markets are operating effectively, and promote competition) by leveraging data and intelligence.

The speech highlights current trends impacting on the transformation in the financial services sector, including:

• 30-year high inflation;
• growth in fintech and AI powered business models (with a record £30bn invested in UK fintech companies in 2021); and
• alternative forms of finance such as Crypto (with 1 in 5 UK residents now owning some form of crypto).

Despite the benefits of some of these trends, risks abound including increases in reliance on consumer credit, cyber-attacks, and the purchase of unsuitable or inappropriate products via social media. 

In the face of macro and systemic risk, the FCA outlines that it is transforming by leveraging data and intelligence to be proactive and innovative in its approach to regulation.  This accords with the FCA’s wider objective to become a more innovative, assertive and adaptive regulator. 

The FCA is transforming its platform, building new tools, and growing its capabilities to deliver changes across the data and technology pyramid. It is also modernising its enterprise architecture to a cloud-based infrastructure, to strengthen security and operational resilience.  The FCA is also working to improve the data it collects, as well as expanding its data with new sources of intelligence (e.g. highlighting that it scrapes over 100,000 websites daily to identify scams and fraud).  Further, the FCA states that its Digital Unified Intelligence Environment will ensure it can continue to adapt to new challenges, whether it’s sanctions enforcement, crypto firms or new consumer risks brought about by rising inflation.

The speech also outlines the FCA’s innovative regulatory programmes including:

• its range of Innovation services to promote competitiveness in UK fintech;
• its Regulatory Sandbox allowing businesses to test innovative propositions in the live market, alongside regulatory oversight (with 80% of firms that were tested in the Regulatory Sandbox still in operation);
• the Direct Support and Advice Unit;  
• the launch of its Innovation Pathways – a new service that provides tailored regulatory guidance to innovative businesses, including established firms, start-ups and tech firms that want to deliver positive innovations and consumer outcomes in the financial services market; and
• the Digital Sandbox providing firms with access to a range of online tools and high-quality synthetic data assets to test and develop their propositions.

Regarding crypto, the FCA’s current remit is limited to ensuring anti-money laundering rules apply to crypto firms, however it welcomes the Government’s recent announcement of a flexible approach to regulation and its new powers over the promotion and marketing of high-risk assets such as crypto.  The FCA also held its first CryptoSprint in May, a 2-day event which brought together around 100 experts from academia, regulation, technology and financial services, providing an open forum to discuss and debate fundamental questions around regulation, taxonomy, and disclosure in crypto markets.  The FCA plans to continue a programme of industry engagement in this area throughout the year.

The FCA recognises that when used correctly and responsibly, data and technology can offer faster, more efficient, and more secure services to consumers that empower them to make appropriate choices and protect their personal data.  The FCA’s role in this regard is to encourage responsible innovation, while understanding and responding to risks as they arise.  Maintaining this approach and striking the right balance between encouraging innovation and regulatory intervention will be crucial to ensure the UK remains a world leader in fintech and financial services innovation and transformation.