FCA chief warns of fintech challenges to regulation
The chairman of the Financial Conduct Authority has said the continuing development of fintech is a challenge for regulators. John Griffith-Jones said deciding which firms, transactions, services and products are covered by regulation is difficult as rules for the “paperwork era” do not necessarily work for the digital one. Furthermore, artificial intelligence-led robo-advice has blurred the line between advice and guidance. The FCA has set up Project Innovate, an initiative to help fintech start-ups bring innovation to the market, which includes a regulatory "sandbox" that can test rulings. He also said the FCA could learn from regulators in other sectors.
“THE REMORSELESS march of technology” is a challenge for financial regulation, the chairman of the Financial Conduct Authority (FCA) has said.

John Griffith-Jones (pictured) told an audience of MBA students at the Cambridge Judge Business School that assessing what firms, transactions, products or services are covered by regulation “has proved more problematic than you might have expected.”

The chairman of the City watchdog cited examples that fall outside of the FCA’s perimeter, such as the process for setting Libor – the rate at which banks lend to each other – and physical trades in commodities.

“The problem is exacerbated further by the remorseless march of technology,” he said. “Rules that were designed for the paperwork era do not work necessarily for the online one.

“The distinction between advice and guidance, once reasonably clear, has become much greyer with the advent of platforms and the potential of robo-advice.

Read more: Bank of England Governor warns P2P growth may create “conventional risks”

“High frequency trading is a million miles from open outcry trading on an exchange. Artificial Intelligence puts the pooling of risk via insurance under pressure as individual odds become increasingly forecastable,” he continued.

“An additional challenge comes from the differential pace of take up of new ways of doing things by the general public. Our children’s knowledge of cheques stretches little further than Christmas presents from grandparents. Many of them are uncomfortable with online banking.”

Griffith-Jones said that while there is “no silver bullet” to solve these challenges, the financial sector could learn from other regulators, namely telecoms and pharmaceuticals.

“The FCA is seeking to embrace technical developments through its Project Innovate and Sandbox initiatives,” he said. “We have come to realise that the more detailed regulation that we have the greater is the challenge of keeping it all current.”

Project Innovate is the FCA’s recent initiative to help fintech start-ups bring innovative products and services to the market. It includes a regulatory sandbox, aka a ‘safe space’ where businesses can test out innovative products. Peer-to-peer payday lender The Money Platform was one of the start-ups put in the Project Innovate scheme.

Read more: Fintech front of queue for £2bn innovation investment

Griffith-Jones’ speech did not specifically mention P2P lending, but his comments echo those made by FCA chief executive Andrew Bailey about the sector.

At the time of the FCA’s interim feedback statement from its crowdfunding review last December, Bailey told Peer-to-Peer Finance News: “It’s an industry which quite sensibly and quite understandably is rapidly evolving and innovating. Some of the ways in which we’ve seen that innovation develop are quite sensible and others do create issues for us.”