As technology advances year by year, it’s important to reassess technology’s effect on financial services. The invention of the smartphone created opportunities for a lot of things and a lot of industries, but it also allowed customers to create a closer and clearer relationship with their finances. Online banking, e-wallets, applying for loans online, digital currencies and more have all come about in the past couple of decades and have had a big effect on the financial industry. Furthermore, with online, tech-driven and F2F elements phasing out, financial services face different types of financial crime and they need to adjust their systems and controls. This is where the FCA come in with their role as they want to ensure the customers are protected and find the services sector is appropriately managed.
It’s important that financial sectors encourage innovation as well as adapt to it. In this guide, we’re going over the role of the FCA when it comes to technological innovation and its impact on the financial sector.
What is the role of innovation in the FCA?
Technological innovation has the potential to disrupt well-established ways of doing things, with varying degrees of success. The financial sector is well aware of this, having been affected for better or worse by biometric scanners, digital wallets, digital currencies and much more.
The FCA responds to these disruptions in a number of ways. They create digital intelligence tools that are designed to handle the various new problems that the latest technology can create.
With the world in the state that this is in, the role of the FCA is important. Technology is advancing, we’re still coming out of a worldwide pandemic, we’re going through an energy crisis and a climate crisis, and war has erupted, all of which have varying effects on finances. Preparing for the future in such an unstable world is vital.
1. How is the FCA fostering innovation?
The FCA has three main aims that they build their work around: fostering innovation, intelligence-led operations, and preparing for the future. The first, fostering innovation, revolves around creating an environment that allows for innovation while making sure that the customer is put first and remains unharmed by advancements.
It has also launched its firm support service, made up of the Direct Support and Advice Unit Services called Innovation Pathways. It is designed to offer support on regulation matters to innovative business models with a vision, in an attempt to encourage new ideas. The idea is to ensure that regulations do not get in the way of technological advancement in the future.
2. What intelligence is leading the FCA?
The FCA is using both data strategy and Digital Unified Intelligence Environment (“DUIE”) to aid in making decisions.
Harnessing data for the use of understanding what is happening in real-time, and using that understanding to make actionable advancements, is vital to preparing for the future. This data warns of emerging risks and is the evidence that is used to create theories on how to deal with these risks.
There are a variety of analytical tools used to collect data that helps to identify risks like phoenixing at the gateway. From there, it can be addressed with automated operations or frontline teams.
The FCA is also investing in the DUIE, which connects data and intelligence across systems in order to deliver data where needed to block harm.
3. How is the FCA preparing for the future?
Innovation and intelligence will be combined in the FCA’s plan for the future. The two concepts are at the centre of its corporate priorities and are backed by initiatives like a Digital Sandbox Sustainability Cohort, a Sustainability TechSprint, and a Green FinTech Challenge.
All three of these initiatives have been instrumental for the FCA in creating new solutions in finance, encouraging sustainability, and allowing the live testing of new fintech products.
The aims of using these initiatives are to focus on the key priorities of the FCA, including sustainable finance and environmental, social and governance (“ESG”), by aiming for firms to be as sustainable as possible and will prepare these firms for the future. ESG data creates insights into certain markets’ attitudes to climate change, and if changes can and are being made to keep the planet sustainable as well as firms. The FCA aims to lead by example, encouraging behaviours that will help firms transition into a net-zero economy.
The final thing that is a priority to create a sustainable future, is to be a proactive regulator. The concept of leading by example is at the forefront of this. In order to encourage more innovative practices in firms, the FCA aims to be more innovative in its practices but to also regulate where it needs to. This is to encourage market integrity and protect consumers.
Innovation is at the centre of all of these concepts, but also regulations, which will result in a more sustainable model across the fintech industry.
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