Financial technology, simply known as FinTech, is one of the most rapidly growing industries in the United Kingdom. With approximately 1.600 firms active in the sector and about 10% of global Unicorns based in the territory, the UK comes second to the USA. when it comes to FinTech’s impact and numbers.
This massive concentration of financial and professional services firms makes the UK highly attractive to investors. Just in 2020, $4.1 billion of the sector’s venture capital came to London, which is nowadays regarded as a FinTech “superhub”. However, other cities like Belfast, Durham, Edinburgh, Cardiff and Birmingham have also a considerable volume of FinTech activity.
So how is this booming sector regulated in the UK? And how will it be impacted by the introduction of future legislative changes?
Who regulates fintech in the UK?
Despite the strength and rapid growth of the sector, there is no UK finance regulator or laws that specifically govern FinTech businesses. This is not exclusive to the country, however. As the industry is relatively new, FinTech regulation across the globe is still under development. In the USA, the number one region with the largest number of FinTech projects (about 8.775 according to recent figures), there is no unified regulatory framework. Hence, FinTech activities are regulated by laws specific to each state.
In general, FinTech regulation is significantly more complex than that of more traditional financial institutions. Unlike banks, for example, financial technology companies are smaller and usually operate across multiple jurisdictions. They might also likely need to comply with different regulations in every region or country.
In the UK, FinTech companies need to comply with the same laws that govern other businesses offering financial services. The Financial Conduct Authority (FCA) and the Prudential Regulatory Authority (PRA) are the main UK regulators. Among the FCA’s responsibilities is to protect financial service consumers, keep the industry stable and foster healthy competition between the different providers. Meanwhile, PRA ensures the safety of these firms, secures protection for policyholders and also promotes effective competition. In addition, UK FinTech businesses must comply with the Proceeds of Crime Act 2002 or POCA.
The future of the FinTech regulatory landscape
While there is not a FinTech-specific regulatory framework planned for the future, it is believed that the Financial Services and Markets Bill (FSMB) will have an impact on the architecture of financial services regulation. Laid out in Parliament in 2022, the bill proposes a set of legislative changes to the UK’s capital market rulebook, which aim to enhance the coordination between regulators over new technology, data and possible changes in the finance sector driven by the proliferation of cryptocurrencies, NFTs, and blockchain technology.
While the FSMB has been described as a “once-in-a-generation opportunity to transform Financial Services regulation”, it has also been met with scepticism as it will grant the government more opportunities for intervention. Currently, the bill is in progress in the House of Lords and is still far from its final stages of approval, making it challenging to determine its ultimate impact on the landscape of the FinTech sector.
