The pandemic was a wake-up call for many financial services organisations who had no choice but to become digital entities practically overnight. The industry, however, continues to face a time of considerable change to meet the needs of the digital age. But what is the best way to encourage innovation within the industry while protecting consumers and promoting financial inclusion?
One way that markets are trying to achieve this effectively is through regulation. The proposed Financial Services and Markets Bill, for example, was introduced by the UK government to encourage innovation across the financial services industry, centred around supporting consumers through digital change. The bill is in place of existing EU regulations after Brexit and aims to support the UK government’s “open, green and technologically advanced” vision for the sector, which is “globally competitive.”
Introducing the bill is a significant step forward for bringing financial services front and centre in the UK, but it raises the question: is innovation possible with regulation?
Isolation vs Opportunity
The Financial Services and Markets Bill aims to make the UK the financial, technological and crypto hub of the world, following in the footsteps of the US and moving away from the EU. How does it plan to achieve this?
The Bill will implement the outcomes of the Future Regulatory Framework (FRF) Review created to reflect the UK’s new position outside the EU. Although, this means that the UK could isolate itself from its close neighbours and neglect the abundance of an industry that encompasses the UK. Independent regulations and proposed red tape could cause leading European Banks to take their business to other markets, which would limit innovation.
While there is a risk of isolation, the opportunity lies in new possibilities with countries such as Canada and Australia, who look to the UK as an example of best practices. Instead of concentrating on the UK in a silo, the Bill would be more valuable to the industry if the government looked to connect and encourage new business with different markets – supporting the UK’s growth and welcoming innovation from different markets.
When looking to support growth, adopt new technology and innovate, banks need to remember that the needs of all customers must be taken into consideration. As banks accelerate their digital transformation strategies, consumers who prefer more traditional and manual banking methods, such as banking at branches and cash payments, can be left behind.
While the Financial Services and Markets Bill is focused on protecting consumers, it also aims to harness the opportunities of innovative technologies. At the same time, it aims to encourage the competitiveness of UK markets and promote the effective use of capital. The UK government must therefore be careful not to leave the consumer behind.
There are regulations put in place to safeguard consumers, however. A recent notion from the FCA means that banks and building societies need to assess the impact of changes to their services. This is following the FCA’s warning that the industry is “not currently doing enough to properly understand the impact of these changes”. The regulator now has the power to issue fines to banks that don’t consider access to physical banking services.
The industry must therefore strike a balancing act to transform for the future while also maintaining all-inclusive services for every consumer.
Collaboration is key
Collaboration should be central to encouraging innovation across the industry globally. To accomplish this, banks need to overcome issues surrounding interoperability and a lack of industry standards. For this to happen effectively, financial services organisations must have access to technology that supports them with introducing innovative solutions efficiently.
Empowering banks to select software vendors needed to obtain the best-of-breed for each application area without worrying about interoperability can be achieved through a coreless banking approach to banking. Banks will also not be constrained to those service providers who operate within their technical language or messaging model because they will use one standard message model.
Each solution will therefore be able to seamlessly connect and exchange data from fintechs to traditional banks to technology providers. Organisations will also be able to communicate effectively on a global scale, removing barriers to growth and supporting international and national regulations, such as the Financial Services and Markets Bill.
Access to the latest technologies that can support consumers and banks alike will inevitably lead to success for the future of the industry, especially as digital adoption grows. A connected and seamless industry will undoubtedly deliver value, and although regulation is the foundation of the industry, focusing on the customers' needs and collaboration between markets will be the key to unlocking innovation. If innovation and regulation can work hand in hand to achieve that, then the industry will be set up for success in the long term.