FCA focus areas that drive Regtech innovation trends

Regtech has been in the spotlight for the past couple of years, and with the ecosystem warming up to the trend, we see quite a lot of activity around events, awards and regtech forums emerging. Technology solving regulatory requirements has been around for a long time, especially post 2008 when regulators across the world increased the oversight on banks.

Deloitte-Regtech-Universe-report-2017

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Its interesting to see how regulators’ policy priorities drive hot trends within the regtech space. I have seen a few recent trends affecting startups that I work closely with. Priorities for the FCA and the European regulators have driven several new innovative opportunities.

MiFiD 2: Of the various impacts that this regulation has had, I have been closest to the research unbundling requirement. As this unbundling happens, several buy side firms are looking at a huge research bill slapped on them and are starting to look for more cost effective and unbiased alternatives.

The research industry which was largely monopolised by banks (>90% of market share), is now opening up to independent research firms and that creates opportunities for innovative research trends.

Stockviews a Fintech firm based out of L39 in Canary Wharf spotted this opportunity years ago, and are currently doing research with proprietary AI capabilities.

PSD2: PSD2 and the Open banking revolution have created several opportunities for Fintechs and Banks. Two of my portfolio firms, Funding Xchange and Yielders have leveraged open banking to drive growth.

Funding Xchange, as mentioned in one of my previous posts, are regulated open banking providers focusing on SME lending. Access to customer transactions will give them more accurate data to provide lending recommendations.

Yielders on the other hand are a Sharia compliant equity crowdfunding market place. Through open banking they are looking to forge partnerships that would allow them onboard millions of banking customers, who would want access to Sharia products listed on the platform.

HSBC last week launched their open banking app that allows customers to view their FS products across 21 banks inside one app. Innovation is not restricted to Fintechs.

GDPR: We can’t miss GDPR and the impact it has had on all our inboxes in the past few weeks. One of my portfolio firms Novastone have had to rethink their product roadmap and technology budgets to make their product compliant with GDPR.

GDPR has also triggered several innovative companies to review their security and data privacy technology and process controls. This is not just a Fintech trend and has affected several innovative firms across multiple industries.

Brexit: As someone in the fund management industry, I have found Brexit disruptive. When investors see unstable politicians, muddled regulators and volatile markets they often find it hard to invest in the Geography. While the FCA has largely handled their policy making around Fintechs quite well, they haven’t been able to provide clarity to the fund management industry and the impact Brexit would have on various aspects of fund management.

Cryptos: While the last year was largely about ICOs, I think 2018 and 2019 will be mostly about how regulators across the world find a way to regulate the world of cryptos. Over the last few months, I have come across firms firms and funds looking at ICOs, tokenising and investing in cryptos, who are in discussions with regulators (not just the FCA).

While this is not common, this is definitely an emerging trend where firms want to ensure they understand their regulatory risks before launching a crypto.

When I was at B-school, innovation and regulation were often discussed as mutually exclusive in many ways. Fintech may be the first to bring them two together.


Arunkumar Krishnakumar is a Fintech thought leader and an investor. 

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