London continues to be ranked as one of the most ‘fintech-friendly’ cities in the world and, as such, a broad spectrum of fintech businesses at various stages of growth and development are represented in the United Kingdom (UK). There are currently over 2,500 FinTech companies in the UK, a figure which is expected to at least double within the next 10 years. It has been estimated that half the UK’s small businesses and over four million consumers use services powered by Open Banking technology.

There are currently no prohibitions or restrictions that are specific to fintech businesses in the UK, and depending on the nature of the business, fintech is regulated in the same way as other traditional financial services firms. However, the fintech industry has been subject to the proverbial problem of too many cooks. Presently this sector is regulated by several agencies in the UK. The Financial Conduct Authority (FCA) is responsible for most regulated activities and services that a fintech would provide.

The Prudential Regulation Authority (PRA) covers the prudential regulation of banks and insurers in conjunction with the FCA. The Payment Services Regulator (PSR) looks at the payment systems and the financial institutions that participate in them. HM Revenue and Customs (HMRC) and the Information Commissioner’s Office also play a role in this space.

This is not all, as more government departments are looking to get involved. The Bank of England and HM Treasury have recently set up a task force to scope out the viability of a UK central bank digital currency, and in April 2022, the government announced plans for stablecoins to be recognised as a valid form of payment. As crypto assets technology and investment is a growing area within fintech, the UK aims to make it a global hub for crypto assets technology and investment.

Upcoming Areas of Regulation

The FCA’s Director of Strategy and Competition, Chris Woolard, stated that regulation has a role to play in creating an environment to encourage innovation and competition.

After regulations passed in 2011 (Electronic Money Regulations 2011) and 2017 (Payment Services Regulations 2017), payment services and e-money are separately regulated. However, as previously mentioned, the government is in the process of introducing a new set of policies relating to the custody of stablecoin as part of its approach to establishing a bespoke regulatory framework for this type of digital asset.

Another new regulatory requirement within this sector would be Consumer Duty which is expected to be implemented by 30 April 2023. It is driven by the FCA and aims to set higher expectations of firms in order to have confidence in financial markets and future gains from innovation’. The Consumer Duty will require firms to review all financial products and services in the UK that are aimed at retail customers.

Another important fintech product that will be under the scanner is Buy-Now Pay-Later credit agreements which allow people to spread the full cost of a purchase over time.

In June 2022, the UK government announced proposals to bring unregulated BNPL products within the Consumer Credit Act 1974 (CCA) to protect customers.

Additionally, there are also EU initiatives on the horizon, including MiCAR, covering the crypto asset market, and the EU Retail Payments Strategy, which is expected to lead to a greater supervisory focus on the sector as a whole and may impact the UK market as well.

Who watches the UK Fintech Industry?