According to the maxim “shutting the stable door after the horse has bolted”, the collapse of Powa Techologies prompted the UK’s Financial Conduct Authority to examine the risks associated with the fintech sector’s governance, fiscal prudence, cyber security, protection of information and financial exclusion. Business Insider International quoted from the FCA’s annual Business Plan, that it wants to ensure “greater compliance” amongst fintech firms. In its report the FCA makes a big point of talking about increasing the amount of regulation placed on financial technology, companies.
According to the article Powa Technologies collapsed into administration and no one knows where all its money went.
The use of technology within the financial industry — known as fintech — is a huge growth sector, with UK firms like Funding Circle, TransferWise, and World Remit making waves in an area traditionally dominated by big banks and established firms.
Because fintech is a fairly new industry, it isn’t subject to the same regulation as traditional finance, which has led to concerns from some corners of the market about the misuse of fintech. Those fears were made even worse earlier this year, when British fintech unicorn Powa Technologies suddenly collapsed after running out of cash.
That’s something the FCA wants to stop happening in the future, and the authority’s report makes clear that while it supports technology in the financial sector, it isn’t going to let technological innovation go unchecked.
Technology is rapidly driving the transformation of the financial services sector. It has the potential to increase competitiveness, innovation and efficiency, creating real benefits for both consumers and firms. However, it also creates risks, including for operational resilience, cybercrime, protection of information and financial exclusion. Firms need to focus on both infrastructure and culture to ensure that new technologies benefit both consumers and markets.
While it is keen to make sure that the use of tech in finance is properly regulated, the FCA stresses that overly “rigid regulation may stifle innovation in financial services” and is setting up what it calls a “safe space” for firms who want to use tech to innovate in the industry.
The FCA says that the so-called Regulatory Sandbox “will give firms which meet our eligibility criteria a safe space to test innovation without immediately having to meet all the normal regulatory requirements.”
The report adds that firms “will be able to test new products, services, business models and delivery systems. Unauthorised firms will benefit from restricted authorisation for testing purposes, and all eligible firms will have the potential benefit of individual guidance, waivers and no enforcement action letters.”
Along with vastly increasing its regulation of the fintech industry, the FCA also says that it is looking to use technology to help in regulating the financial services industry.
Source: Business Insider International