Speech: The FCA's Christopher Woolard on innovating for the future

I wanted to start with just a brief reminder of why we, as the regulator, are committed to promoting innovation and give you a sense of progress on our journey. But I wanted to spend most of my time considering what we think the next steps in that journey should be, particularly internationally.

Like all good journeys, let's start at the beginning. The FCA has a strategic objective in law to make markets in financial services work well. To do that we look at the integrity of markets, consumer protection and have a duty to promote competition in the interests of consumers.

We do a number of things to promote competition - market studies that take a fundamental look at how markets are operating, we enforce competition law, and review our own rules where they unduly inhibit competition. We also promote innovation.

In many markets, not just financial services, we can observe it is competition and the innovation spurred by it that challenges incumbents. It provides better outcomes for consumers. Better value products and services.

How that process of competition and rivalry takes place is often best determined by the market. It may be new start-ups challenging incumbents. Or those large incumbents working in partnership with innovators to challenge the status quo. Or ideally a healthy mix.

We believe regulation has a part to play in making sure the right conditions exist for that competition.

Through the FCA's Project Innovate, we help firms tackle regulatory barriers to innovation, be it through clarifying regulatory expectations, examining our own rules or enacting policy changes, to give them space to innovate in the interest of consumers.

Like the firms we support we haven’t shied away from breaking new ground in how we regulate this dynamic industry.

For example, our Regulatory Sandbox was the first of its kind.

This year the FCA also invited Innovate Finance to lead a working group to explore options for an industry-led virtual sandbox. It’s great to hear work is continuing on this.

So our approach is bold, pre-emptive and progressive, and we’re committed to continue leading the charge.

Measuring success
We are working much more deeply with innovators than this time last year.
In supporting innovative firms, products and businesses we’re ultimately looking to satisfy three critical measures of success:

Can we see more innovative firms entering the market?
Is there greater innovation and competition by and between larger firms?
And ultimately are consumers benefiting from that?
I should stress from our perspective this isn't about inward or outward investment, although we recognise what an important role regulation can play in that. It is about the outcomes for consumers.

Many of these outcomes will only become clear when measured over a number of years. So we need to have some indicators that we’re at least on the right road. One is the number of innovators working with us.

In the immediate aftermath of the EU referendum there was a concern that we would see the number of innovative firms wanting to operate in the UK fall.

Indeed we did see a dip and it’s worth reflecting on the fact that we live in an uncertain climate and nothing can be taken for granted.

Now the fact that so many of us are all here today would suggest the UK ecosystem as a whole continues to remain attractive to innovative firms. Within that at the FCA we have some exceptionally dedicated and imaginative people working on innovation issues who play their part.

The fact is that in the nine months prior to the referendum, we received 264 requests for support. But in the nine months after the referendum, that figure had increased to 321 requests for support.

The fact is we are working more deeply with innovators than this time last year. For example we received 77 applications for the second cohort of our sandbox, more than applied for cohort one. And I can announce today that we will be accepting 31 of these applications to progress towards testing, nearly double the number of firms currently testing in our first cohort. That means more innovative firms, trialling more innovative propositions to bring to the market.

And finally, the fact is that through engaging larger firms in innovation through the Sandbox and our Advice Unit, the potential numbers of consumers who could benefit from the services offered by those firms has moved in the space of one year from being counted in the tens of thousands to being counted in millions.

Embedding our approach
In an industry that moves as fast as this one, it’s crucial we keep building and re-building our understanding of the landscape, adapting our approach as we go.

Reflecting on everything we’ve learnt since we launched Project Innovate in 2014 – and we’ve learnt a huge amount – we will now enter a new phase.

In a way, our journey has mirrored that of the firms we support: from start-up to a more established enterprise. Over time, we want some of what we do in our innovation work to become the norm in how we operate.

Future plans
It's crucial we keep building and re-building our understanding of the landscape.
But we also need to keep evolving as we do that. So what do we plan for this year?

Well, quite a lot.

For example, the Advice Unit, which currently assists firms developing automated advice models will now have a broader remit, taking in firms within the mortgage, general insurance and debt sectors, as well as firms that want to provide guidance instead of regulated advice.

We’re also asking our Innovate team to do more to lead the conversation about emerging trends and innovations. Later today we are launching an open debate on the risks and benefits of distributed ledger technology (DLT).

And I’d encourage you all to share your thoughts.

But I’d like to focus the remainder of my comments on two developments that reflect the growing reach of our innovation work.

International

The first strand is rooted in the international nature of innovation.

As demonstrated by the title of this summit, innovation is a global business and we’ve been international in our outlook from the get-go.

By building a common understanding of the principles of good innovation we can benefit both stronger international co-operation, and help secure the long-term future of the industry.
The concept of innovation has caught the eye of regulators around the world and in the last few months alone we’ve signed co-operation agreements with colleagues in China, Japan, Canada and Hong Kong. Only last week I was in India discussing our next agreement with our opposite numbers.

This transfer of ideas and innovation breaks down barriers to entry, giving firms more freedom and flexibility to innovate. It increases the potential for international collaboration. This is in the interest of both consumers and the wider economy.

But in a world where many governments and regulators have begun to show an interest in innovation there are challenges.

As different jurisdictions begin to set up their own sandboxes, with different models and standards, some believe a ‘Wild West’ version could emerge.

This runs entirely counter to our ambitions, which we know many share, for responsible innovation, which, rather than risk diminishing outcomes for consumers, should enhance them. We also believe that a sandbox that fails to prepare firms to join the regulated market will not foster firms that succeed long-term.

We also see potential risks to the reputation of and trust in financial innovation if there are examples of global failures in the future.

At the same time globally we have many different markets where innovation is taking place an for many different reasons. Sometimes to deliver better value for consumers. Sometimes to deliver financial inclusion and access. There is unlikely to be one standard that fits all, just as we see many different types of financial regulation.

However, along with a number of colleagues internationally we believe that by building a common understanding of the principles of good innovation we can benefit both stronger international co-operation, and help secure the long-term future of the industry.

So a significant focus for us will be seeking to develop this consensus through bodies like the G20 and IOSCO.

Regional

For my last point I would like to bring us closer to home. We are beginning to see the emergence of serious interest in FinTech hubs outside of London. We see real potential here for a further wave of innovative firms.

We’ve a history of working with specific centres of expertise, like Cambridge, and have worked with firms all around the UK through the Innovation hub. The UK has many areas of exciting developments from big data in Liverpool to robotics in Bristol. We will work with as many organisations in as many locations as we can.

We will work with as many organisations in as many locations as we can.
But we’re especially interested in areas where ‘Fin’ and ‘Tech’ collide, that is, areas that have both strong financial centres and a technology presence, often backed by strong relationships with local universities. We’ve mapped these and we see two specific locations where we think we can add value to emerging hubs – namely in the Edinburgh-Glasgow corridor and the Leeds-Manchester area.

We will work with the local authorities, development partners and firms in those locations, as well as the Scottish Government and the Treasury's digital envoys. Our aim, as for the wider work we do, will be to encourage the emergence of more innovative firms, whether home grown or inward investors.

We will start from next month by bringing our people to those firms, offering a regular presence from the Innovation Hub able to give guidance and informal steers to firms seeking to innovate.

And as we have done throughout our innovation work, we expect to experiment, we will evolve what we do and we will do what works.

Closing remarks
In conclusion, we are committed to supporting innovation.

As long as firms are developing innovative products, services and solutions that offer better outcomes for consumers, we’re open for business.

As long as firms are developing innovative products, services and solutions that offer better outcomes for consumers, we’re open for business.
It is our job to provide the conditions that simplify regulatory complexities and give space for firms to innovate.

To do that across the UK, but also internationally.

But, ultimately, we need firms to continue to push the boundaries of competition and innovation for our approach to work.

We've already seen hundreds of firms exploring ideas and dozens coming to market, but we need to still have more.

I'm delighted there have been so many of you here today.

We really look forward to seeing what you come up with.