FCA: Positive Disruption in the Industry is a Really Good Thing
As Policy Director of the Financial Conduct Authority, David Geale is responsible for policy across financial services, from consumer credit through to senior exec accountability in banks, and many things in between. He spoke to FinTech Insider about the FCA’s focus on innovation.
What’s the core purpose of the FCA?
"We have a strategic objective which is to make markets function well, and then we have three objectives that sit below that, which are broadly around ensuring an appropriate degree of protection for consumers, ensuring the integrity of the financial markets, and also promoting effective competition that works in the interests of consumers. So broadly, it’s about consumer protection, promoting competition and innovation, and ensuring the integrity of the market."
We’re seeing competition changing quite dramatically which is great for the consumer, isn’t it?
"We took on a competition objective a couple of years ago. If markets work well, if firms compete on the right basis, that’s all good for consumers, and positive disruption in the industry is a really good thing, because it makes firms think differently, it makes them challenge themselves, and consumers get a better deal as a result."
The FCA established Project Innovate, something that we’ve seen many people trying to emulate. What was the thinking behind that?
"Project Innovate is something we’re very proud of. We launched it at the end of 2014. The thinking behind it was broadly that we were seeing firms having ideas, ideas that they wanted to bring forward to market, that we thought, 'Actually, that is something that’s really good, and it’s something that can challenge the status quo, it can improve things for consumers, either through better access, better education, better understanding, better cost.' There’s all sorts of things we thought it could improve, but some firms were saying they were struggling with how those new ideas fitted within the existing regulatory framework, particularly where that framework wasn’t designed with those ideas in mind. So that was really the genesis of Innovate: 'How can we work with those businesses?' partly to help them, and partly to help us make sure that regulation moves with the times."
One of the major things that’s come out of this initiative is the sandbox. What was the thinking behind the regulatory sandbox?
"The sandbox is there for firms who really need to test in a live environment. The example I often give is around disclosure. So if I actually present to you something and say, 'This is the current disclosure, here’s a new version, which one of these do you prefer? Which one of these do you understand?' well, to a degree, that’s cheating. It’s better than nothing in terms of testing, but you’ve cheated, because actually you’ve got people to read it in the first place, and that’s generally the core challenge, is getting people to engage, getting people to read. So if you can test that in a live environment, and say, 'Okay, we know what you would have had, now what’s the difference in actual behaviour with this new form,' or new style, maybe digital disclosure, for example, you can actually really see the impact of the results. So that’s one example. But equally, from a firm’s perspective, they want to see whether the idea will work. It’s all very well asking people whether actually they would buy a particular product, whether they would use a particular service, but there’s nothing like seeing it in practice.
How much are you guys working with other geographies? Obviously we’ve seen Hong Kong and Singapore and even the US emulate some of the things that you guys have been doing.
"We’ve always worked closely with other countries in performing our general regulatory duties. I would say, though, I think since Innovate was launched, I’ve probably travelled more than I’ve ever done before. In the last year I’ve been to the US, I’ve been to China, been to Canada, and Hong Kong and various other places, and there’s always a lot of interest in what we’re doing, so that’s great.
"In terms of building on that interest, what we want is to use Project Innovate to help firms who’ve got good ideas, either to expand their ideas into other jurisdictions, or to help firms from other jurisdictions come into the UK, to do business where they’ve got good ideas, as well. We have a number of agreements we’ve set up with a number of regulators, kind of FinTech bridges, if you like, where we will share information with those regulators, and if a firm qualifies for support from our innovation hub, then we can help introduce them to the innovation hubs in those other countries, as well."
Interested in learning more about the FCA sandbox? Check out episode 126 of FinTech Insider.