Equity Issues – FCA consults on Global Financial Innovation Network

FCA consults on Global Financial Innovation Network

On 7 August 2018, the FCA published a press release announcing, in collaboration with 11 other financial regulators and related organisations, the creation of a Global Financial Innovation Network (GFIN), and the publication of a related consultation document.

The network will seek to provide a more efficient way for innovative firms to interact with regulators as they look to scale new ideas. It will also create a new framework for co-operation between financial services regulators on innovation related topics, sharing different experiences and approaches.

The collaborative effort, involving regulators from around the world, is also today launching a consultation on the role the GFIN should play in delivering its objectives, including the tools it will use.

The consultation sets out the three main functions of the GFIN:

  • act as a network of regulators to collaborate and share experience of innovation in respective markets, including emerging technologies and business models;
  • provide a forum for joint policy work and discussions; and
  • provide firms with an environment in which to trial cross-border solutions.

As part of the consultation, the group is seeking views on the mission statement for the GFIN, its proposed functions, and where it should prioritise activity. The group is also keen to hear from other interested regulators or related organisations who wish to get involved.

Christopher Woolard, FCA Executive Director of Strategy and Competition and Board member commented:

“The creation of the Global Financial Innovation Network (GFIN) is an important next step for organisations like ours who are actively engaged in understanding and harnessing the benefits of innovation in financial services for consumers, while managing the potential harm.

“The establishment of the GFIN can help share the experiences and knowledge from across different markets, while also providing a platform for innovative firms wishing to scale their propositions via testing in multiple countries.”

The consultation document outlines the key themes that have emerged during an initial informal consultation on the idea of a global sandbox and provides an update on the next steps of the project. The announcement follows an initial consultation on the idea of a ‘global sandbox’ in February 2018 and provides an update on the next steps of the project. 50 responses were received to the earlier paper and were positive about the idea of regulators collaborating on this topic. Key themes to emerge in the feedback were:

  • Regulatory co-operation: Respondents were supportive of the idea of the initiative providing a setting for regulators to collaborate on common challenges or policy questions firms face in different jurisdictions.
  • Speed to market:  Respondents cited one of the main advantages for the global sandbox could be reducing the time it takes to bring ideas to new international markets.
  • Governance: Feedback highlighted the importance of the project being transparent and fair to those potential firms wishing to apply for cross-border testing.
  • Emerging technologies/business models: A wide range of topics and subject matters were highlighted in the feedback, particularly those with notable cross-border application. Among issues highlighted were artificial intelligence, distributed ledger technology, data protection, regulation of securities and Initial Coin Offerings (ICOs), know your customer (KYC) and anti-money laundering (AML).

Chapter 3 of the document sets out a mission statement that outlines the role the FCA sees the GFIN playing in supporting responsible innovation. The FCA envisages that the GFIN could serve three main functions to:

  • Act as a network of regulators to collaborate, sharing experience and best practice, and communicate to firms.
  • Provide a forum for joint policy work.
  • Provide firms with an environment in which to trial cross-border solutions (business to consumer (B2C) or business to business (B2B)).

The FCA explains in the remainder of the document why it believes that the three functions constitute an important part of the GFIN, and how it will potentially operate in practice.
The deadline for responses to the consultation is 14 October 2018. The FCA encourages a wide range of entities to respond including innovative financial services firms, financial services regulators, technology companies and providers. The FCA expects to agree on next steps, including a timeline for the launch of the GFIN, in autumn 2018.

The press release lists the current GFIN members. The named organisations are committed to exploring the idea further, but the consultation process will help inform any future involvement. Similarly, regulators not named may decide to get involved in the future, or after the formal launch of the GFIN.

Ron Feldman

Ron is a partner at Cummings Fisher and heads the derivatives and documentation practice. Drawing on his work in private practice with buy-side clients and in house at investment banks, he has broad experience in providing legal advice in relation to derivatives and structured finance transactions, prime brokerage and asset custody arrangements.

If you would like to discuss any of the points we raise, please contact me or one of our other lawyers.

Phone: +44 (0)207 861 4170
Email: ron.feldman@cummingsfisher.com

 

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