The head of the UK's Financial Conduct Authority (FCA) emphasized the need for global coordination in regulating financial technology in the dynamically changing world. The FCA's Chairman, Ashley Alder, said fintech innovation brings both opportunities and risks that require "smart policy responses" from regulators around the world.

FCA Chief Calls for International Cooperation on Regulating Fintech

Speaking at an event hosted by the UK Mission to the European Union, Alder highlighted fintech as an area where international cooperation can support firms and consumers while managing novel risks. He noted that fintech companies now rank among the top banks in major European economies, driving disruption and innovation across finance.

According to Alder, regulators have a "fairly binary" approach to fintech. On the one hand, they aim to foster environments where new ideas can flourish, promoting competition, consumer choice and economic growth. He cited regulatory sandboxes as an example of mechanisms that allow controlled experimentation.

However, regulators must also remain alert to new risks arising from fintech, where developing common international approaches is essential to protect 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 smart policy responses which don't increase moral hazard."

However, it is important that regulation does not impede the development of an industry that is already on the brink of crisis.

Troubles of the UK's Fintech Sector

In 2023, the fintech sector in the United Kingdom experienced a notable decline in funding, as highlighted by a recent report from Tracxn. This downturn saw local fintech companies raising only $4.2 billion, a stark reduction of 63% from the $11.2 billion recorded in 2022. Despite this setback, the UK maintained its position as the second-largest global hub for fintech funding.

The significant drop in investment to $4.2 billion from the previous year's $11.2 billion is indicative of the broader macroeconomic challenges currently affecting the sector. Factors such as rising interest rates and inflation have been key in diminishing investor confidence. This decline in funding for fintech startups in the UK is part of a larger, unfavorable trend affecting the global fintech industry.

Finance Magnates had reported at the start of 2023 that global fintech funding had already decreased 30% in 2022, totaling $95 billion. This period proved especially challenging for fintech companies, which experienced greater difficulties securing investments than their counterparts in the broader financial and technology sectors. The downturn underscores the importance of regulatory frameworks that support the industry's growth without imposing undue barriers, especially as these companies navigate the verge of a crisis.

Big Tech also in Focus

The FCA chief's speech focused on the evolving role of Big Tech companies across finance. He raised concerns about the potential for firms like Amazon and Google to leverage their digital data and activities when combining it with financial customer information.

Alder said this data concentration could allow Big Tech to gain "entrenched market power" through advanced analytics and AI. While benefits may arise from centralized customer data in a few tech giants, Alder reiterated that regulators globally need to coordinate addressing incentives and common approaches.

"For example, last November the FCA issued a call for input about the way in which Big Tech firms could gain advantages from their digital activities when they combine core business data with financial information sourced from different data sharing mechanisms," he added.

Commitment to EU Partnership

In conclusion, Alder said the UK and EU "must 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.

"We recognize that in key areas the EU and UK are pursuing similar reforms which, although not identical, signal common causes," Alder explained. "We are fully alive to the dangers of regulatory fragmentation, and while I believe that we should avoid talking about reforms in terms of 'divergence' between the UK and EU, I can also say that we won't be pursuing change for change's sake."

Alder welcomed last year's UK-EU cooperation agreement on financial services. He said deepening information exchange and collaboration with European regulators remains a priority amidst reform efforts on both sides. He was officially appointed as the new president of the FCA in January 2023, although the information about his transfer firstly appeared in mid-2022. Previously, he worked as the CEO of Hong Kong's Securities and Futures Commission.