Regulations can, and should, be positive. Clear and enabling growth in all its forms.  So it can, and must, be for our financial services regulations.  And what a year 2022 could be. Coming out of Covid, the next phase of the future regulatory framework review and all of that promise that future finance can bring, supported by the right sort of regulation.

Regulation should be right sized, simple as that in many ways, drafted to do exactly what is intended and not a stitch more.  So, for fintech, for financial services (FS) more broadly, what could, what should 2022 deliver?

There is no separate world of financial services, no separate world of regulation, so, it’s not surprising that the themes running through our news and our politics are those we see running through our FS regulation and what is looking likely this coming year. There is no great reveal here, the future regulatory framework review, trundling through 2021 says much as to what regulation and approach we will see in ’22. 

However, it will be a big year as what is laid down in ’22 will impact all of us for years to come. Regulation that focuses on: promoting growth, international competitiveness, environmental sustainability and innovation, consumer protection, financial inclusion and crypto has the potential to change our world and all our lives.

The UK government and regulators are beginning to find their feet in the post-Brexit world. Thought is being given to the need for the UK to have a robust but reasonable regulatory environment to attract international business.

Evidence of this was provided by the Treasury in November 2021 when it set out proposals for reforming the financial services regulatory framework to ensure that it is fit for the future. This consultation paper reviews the overall approach to financial services built on the existing Financial Services and Markets Act (FSMA) model. The changes brought about as a result of this consultation could include adding ‘new growth’ and ‘international competitiveness’ as secondary objectives that the Financial Conduct Authority (FCA) and Prudential Regulatory Authority (PRA) will have to pursue, and also signal a change in the relationship between the Treasury and the regulators. 

If considered and drafted ‘right’, regulation focussing on growth and international competitiveness can only be positive.  Similarly, such objectives should not bump up against, or seem counter to, consumer protection.  Right written, right considered regulations should be able to be drafted for the benefit of us all.

In addition, UK chancellor Rishi Sunak announced the introduction of a new chapter for financial services in the UK with a vision for an open, green and technologically advanced sector.  The impact of this statement cannot be overstated. It will revolutionize our financial services sector, together with Fintech, so much more than big bang 2: a wholly new approach, conceiving of growth in much broader, sustainable, appealing, planet enhancing terms.  And it will need to be much more than regulatory, there will need to be a paradigm shift in mindset, leadership and culture across the city.  Good news, we are in the right place, at the right time to be able to lead on green future finance.

The FCA is clearly going to up the ante on consumer protection in 2022.  If structured right this could be a very good thing.  The asymmetry which exists in financial services between provider and consumer has hardly led to optimal outcomes for all concerned for a long time. 

Consumer protection only goes so far and, despite the new FCA Consumer Duty (the second consultation on which closed this week), current plans do little to address the issue of financial inclusion. Thus, I am supporting a campaign calling on the Government to introduce a cross-cutting “must have regard” to financial inclusion duty for the FCA. This should include a statutory duty to report to Parliament annually on: the state of financial inclusion in the UK, measures that the FCA has taken, and is planning to take, in order to advance financial inclusion and recommended additional measures which could be taken by government and other public bodies to promote financial inclusion.

Action must also be taken to address the rising scourge of online scams. The Payment Service Regulator (PSR) has published proposals with the aim of preventing Automatic Push Payment (APP) scams from taking place, and ensuring victims who have exercised sufficient caution have their money returned.

However, I am concerned that the PSR's proposals will not achieve this. More than 70% of all APP scams originate via technology sites (e.g. social media) and telecoms (e.g. text messages). Making Payment Service Providers (PSPs) solely responsible for compensating victims of APP fraud will distort incentives. The onus should be on all players involved — including technology and telecoms firms — to stop scams at source before they adversely impact consumers.

There is no evidence in the PSR's cost-benefit analysis that the impacts on the startup and scaleup PSP ecosystem, which includes digital banks such as Monzo and Revolut, have been fully considered. The PSR's proposals may have a number of other unintended consequences: significant increases in operational costs for smaller or startup PSPs caused by mandatory reimbursement, reduction in the attractiveness and competitiveness in the UK Fintech market, greater financial exclusion and worst customer experience should PSPs apply increasingly stringent criteria to potential customers and slow down payments in order to take additional measures to detect and investigate potential fraud.

We need urgent action to address the scourge of online scams but it must be right set. It is positive that the draft Online Safety Bill has included fraud and financial crime in the list of priority offences.

There are large and varied potential benefits to be gained from the crypto opportunity.  The UK again finds itself in a unique position to shape and lead in this ‘new’ finance.  One should never be rose tinted spectacled about this, less so even, Panglossian.  By the same token though, it can’t be that novel forms and structures are subject to different philosophical or political considerations simply by dint of being new.  They have their own risks for sure, you can lose a bundle trading on crypto, true also of most all investment products, but terrifying how little understood this seems.  We must consider crypto in the same underpinning manner we consider anything in this sphere, considering the opportunities, potential applications, risks, consumer issues and, rightly, all the rest. 

Also probably worth noting that so many of our ex regulators, not to mention ex-Chancellors, are now positively involved in the crypto space.  Right set regulation, sound standards will not stymie, they have the potential to be part of that competitive advantage but we need to get a move on. The EU’s Markets in Cryptoassets (MiCA) regulation is already firmly underway.

Finally, there’s a Financial Services Bill coming down the Parliamentary track at some stage.  I hope that this will afford the opportunity to address all already set out above along with ensuring that Parliament has the right level of involvement and scrutiny in all this regulating.  It is also essential that any Bill fully engages with the need to regulate to protect cash for all our futures and indeed to scope out, map out a digital payments future inclusive for all.

2022: the year of the regulator, the year of right conceived, right constructed regulation for consumers, for growth, for international competitiveness, fit for all our financial futures.