Technological developments are providing great opportunities and changing the nature of financial markets, services, and institutions in completely unexpected ways, whilst ensuring compliance with the complex regulations that govern it.
Financial Technology, referred to as “FinTech” is the use of technology both to offer traditional financial services to customers using new technologies, and to improve and streamline the operations of existing financial services institutions by harnessing the power of technology to revamp their existing operational models. FinTech has infiltrated almost every sub-sector of the financial services ecosystem including insurance, investing, wealth management, online banking, lending and trading.
New start-ups are continually offering new services in the above sectors, increasing consumer access to finance and driving competition in the marketplace.
For example, technology has enabled services which would have been almost unthinkable a decade ago, such as enabling individuals to open bank accounts over the internet without ever having to visit a bank branch (and, with the advent of ‘virtual banks’ without any physical branch even existing). Individuals can now pay for products and services using a range of “digital wallets” and transaction services on their smartphone or smartwatch, and traditional wealth-management models have been disrupted by direct-to-consumer platforms which enable investing and portfolio management online. be used to determine how much they ought to pay for their insurance.
Weblaw’s clients include a wide range of FinTech providers, who provide both ‘direct to customer’ services, as well as those who licence technology into existing/traditional financial services institutions such as Banks, Hedge Funds and Insurance Houses.
The FCA Sandbox
Given the complexity and intricacy of FinTech solutions, it can be unclear if any regulation should be applied, and if so, to what extent regulation should be adapted to ensure that innovation is not hindered.
A FinTech regulatory sandbox is defined as “a safe space in which businesses can test innovative products, services, business models and delivery mechanisms without immediately incurring all the normal regulatory and financial consequences of engaging in the activity in question.”
Sandboxes can have many advantages. They can reduce the time and cost of getting innovation to the market. Regulatory uncertainty can also discourage potential investors. Fintech start-ups participating in regulatory sandbox initiatives can therefore convince investors that they are working on both their regulatory obligations as well as their product or service innovations. Sandboxes mean that innovators can work closely with regulators to ensure the new development of technologies align with the relevant regulations.
In 2015, the Financial Conduct Authority (“FCA”) launched the world’s first regulatory “sandbox” for FinTech start-ups at its London headquarters, allowing innovations to be tested under controlled conditions set and monitored directly by the regulator. The UK, already one of the world’s most mature financial regulatory environments, is now an established FinTech hub.
Where you have a particularly innovative FinTech product and think that the FCA sandbox might be right for your business – we can help you to apply for admission and advise you on the likely benefits that such an application might have.
Regulatory Technology, referred to as “RegTech” is defined by the FCA as the “adoption of new technologies to facilitate the delivery of regulatory requirements”.
RegTech products are usually aimed at helping firms to keep up with new regulatory requirements and to reduce the administrative burden of complying with existing standards. The aim of such solutions is to enhance speed, minimise risk and reduce the cost of regulatory compliance – often with a view to enabling competition in markets where the cost of compliance acts as a significant barrier to entry. Currently, applications of RegTech focus on a number of areas such as regulatory compliance, risk management and analysis, identity verification, regulatory reporting, fraud prevention and cyber security.
We routinely assist our clients with the contractual, regulatory and intellectual property issues pertaining to fintech and regtech contracts. This may involve drafting and negotiating contracts/terms and conditions for the provider or advising the client on the procurement terms proffered by the bank, insurance provider or other financial entity to which our client is endeavouring to sell its solution.
Recent work has included:
- negotiating agreements relating to the supply of a compliance and valuation service into one of the world’s largest international banks;
- helping a ‘spin-out’ company from a Russell Group university launch an artificial intelligence product that helps traditional financial services providers to analyse market trading patterns;
- licensing a technology product that enabled the swift analysis of mortgage credit default into a series of major retail banks; and
- a transaction whereby a company was being sold in consideration for crypto currency tokens rather than traditional ‘fiat’ currency.
If you have a FinTech or RegTech product or service, or if you provide software or other technology and/or related services to the financial sector, and need any legal advice please contact us using the contact form below.
Please click here to email Simon Halberstam, Head of Technology Law, or call 020 3206 2781.