It’s been an interesting year in fintech policymaking. Coadec’s Charlie Mercer takes us through it.
Image source: Pexels.
2022 has been a wild year for financial services policymaking… and that’s just trying to work out who’s in charge. We’ve had two Treasury Select Committee Chairs, three Prime Ministers, four Chancellors and fourteen Treasury Ministers.
In some ways, however, we’ve come full circle. The Chancellor at the start of the year is now PM; John Glen, a stalwart of financial services innovation since 2018 is back with a promotion after a brief interlude; and we are still discussing many of the same issues at the end of the year as we did at the start.
So where are we on what matters to the UK’s fintech ecosystem?
The Edinburgh Reforms were announced in December but featured a range of already announced activities. Solvency II reform, expansion of the Investment Manager Exemption to include cryptoassets, and progress on listings reform were all reiterated.
A ‘tranche’ segmentation of EU retained law was set out by the Chancellor, providing a guide to the Treasury’s priorities for the remainder of this parliament, and much anticipated consultations on Consumer Credit Act reform and a Central Bank Digital Currency were announced.
The Financial Market Infrastructure Sandbox could be a boon for some fintechs if well designed, while the moves to consolidate DC pension schemes and progress with pension charge cap reform will benefit the startup sector as a whole.
Further highlights included the new Consumer Duty, which obliges regulated firms to deliver good outcomes for retail customers, and the first use of Variable Recurring Payments for ‘sweeping’ customer funds, under the Open Banking Order.
Standing still (for now)
We close 2022 a few small steps closer to a defined future state of Open Banking but with rumbles of concern. AltFi exclusively broke the news that the sector crossed the 6 million user mark in June this year, while big time raises by UK darlings GoCardless and Moneyhub were bright spots.
But waves of job losses and continued uncertainty on the future of regulation tempered the year. Coadec and FDATA signed an open letter at the start of December with 17 fintechs calling for the Joint Regulatory Oversight Committee (JROC) process to accelerate to give the sector much needed confidence. Meanwhile, the Data Protection and Digital Information Bill, which many look to as the long-term future of open data, is currently on ice. All in all, Q1 2023 will be the defining period for Open Banking in the UK.
‘Buy now, pay later’ (BNPL) remains unregulated despite a consultation that closed in January, a year of continued scrutiny in the press, and further news promised before the end of 2022. While the right step in the long term, the now-announced review of the Consumer Credit Act must not jeopardise short-term regulation, leaving firms and consumers stuck in limbo. The FCA’s proposals to improve the credit information sector, announced in November, should also neatly complement BNPL regulation if done right.
Work to do
After concluding its review of the fees charged by acquirers, the Payment Systems Regulator announced two groundbreaking investigations into the fees charged by Visa and Mastercard in June. The first was into the cross-border interchange fee hike post-Brexit, and the second was into scheme and processing fee rises over the last several years.
Crucially, these investigations are critical to payments innovation, including open banking, as there must be a level playing field to ensure fintechs can compete and retailers get choice. Unfortunately, the final Terms of Reference, announced in October, suggest we’re in for the long haul, and some (including us at Coadec) think that there should be a political review in parallel to explore whether the current regulations are sufficient.
And finally… Crypto
While economic and political uncertainty have sometimes led the world of fintech to feel like a bit of a rollercoaster in 2022, crypto saw the turbulence and said “hold my pint”. From the heady days of a Treasury NFT being announced at IFGS in April, crypto has seen a series of global scandals, most recently culminating in the downfall and disgrace of FTX.
These events reinforce the need for meaningful and educated engagement with the sector by policymakers. Crypto is not going away: more people in the UK hold cryptoassets than had bank accounts with Northern Rock in 2008. The sector must be tackled proportionately and robustly as a priority in 2023, and the Financial Service and Markets Bill is a step in the right direction.