The chief of the UK’s Financial Conduct Authority (FCA) stressed the importance of global coordination in regulating financial technology in today’s ever-changing landscape.
Ashley Alder, Chairman of the FCA, underlined that fintech innovation presents both opportunities and risks necessitating “intelligent policy responses” from regulators worldwide.
Addressing an event hosted by the UK Mission to the European Union, Alder emphasised fintech as an area where international collaboration can aid firms and consumers while addressing emerging risks.
He noted the ascension of fintech companies to top ranks alongside major European banks, catalysing disruption and innovation within finance.
Alder described regulators’ approach to fintech as “fairly binary”.
On one hand, they aim to cultivate environments conducive to new ideas, fostering competition, consumer choice, and economic expansion. He cited regulatory sandboxes as a means to facilitate controlled experimentation.
Nevertheless, regulators must also stay vigilant against new risks stemming from fintech, necessitating the development of common international approaches to safeguard stability and competition.
“The failure of SVB and other problems with banks last year was a prime illustration of how technology has massively accelerated the speed at which bank runs can develop,” Alder said.
“This requires intelligent policy responses which don’t increase moral hazard.”
However, it is imperative that regulation does not hinder an industry already on the brink of crisis.
In 2023, the UK’s fintech sector witnessed a significant decline in funding, as revealed by a recent Tracxn report.
This downturn saw local fintech companies raise only $4.2 billion, marking a substantial 63% reduction from the $11.2 billion recorded in 2022. Despite this setback, the UK retained its position as the second-largest global hub for fintech funding.
The notable drop in investment from $11.2 billion to $4.2 billion from the previous year indicates the broader macroeconomic challenges currently impacting the sector.
Factors such as rising interest rates and inflation have played a pivotal role in eroding investor confidence.
This decline in funding for UK fintech startups is part of a wider, adverse trend affecting the global fintech industry.
Finance Magnates reported at the beginning of 2023 that global fintech funding had already decreased by 30% in 2022, totalling $95 billion.
This period proved especially challenging for fintech companies, facing greater difficulties securing investments compared to counterparts in broader financial and technology sectors.
The downturn underscores the importance of regulatory frameworks supporting industry growth without imposing undue barriers, particularly as these companies navigate the verge of crisis.
Alder’s speech centred on the evolving role of Big Tech companies in finance.
He expressed concerns about firms like Amazon and Google leveraging their digital data and activities, particularly when combined with financial customer information.
Alder warned that this concentration of data could enable Big Tech to amass “entrenched market power” through advanced analytics and AI.
While acknowledging potential benefits from centralised customer data in a few tech giants, Alder reiterated the need for global regulators to coordinate efforts in addressing incentives and adopting common approaches.
“In conclusion, Alder emphasised the importance of UK-EU partnership, asserting that both parties should lead by example in their bilateral relationship and interactions with other regulators.
He reaffirmed the FCA’s commitment to seizing opportunities from Brexit while avoiding regulatory fragmentation.”