Fintechs play a pivotal role in the financial services landscape, yet many existing regulatory frameworks were not designed with them in mind. For this reason, the UK is set to launch a licensing program aimed at reducing the red tape that has hindered many fintechs.
Under this program, financial services companies will be able to conduct certain regulated activities under a provisional license for up to 18 months while they working toward full authorization.
The new framework responds to criticism from UK fintechs over the time and expense required to secure a full license. At the same time, easing these requirements is part of a broader initiative by UK regulators to boost economic growth.
Expanding Fintech Access
Calls for better regulation of disruptive financial technologies aren’t relegated to the UK. U.S. Federal Reserve Governor Christopher Waller recently posited that payment services companies should be able to obtain a limited account with the Fed.
Traditionally, master accounts that access Federal Reserve services have been restricted to licensed banks. However, Waller’s proposed “skinny” master account could allow fintechs to access these services directly. This could eliminate a pain point for many U.S. fintechs that currently rely on licensed banks’ master accounts to conduct their payment services.
A Growing Acknowledgement
These regulatory proposals and initiatives reflect a growing recognition among regulators worldwide that fintechs are critical to the modern financial services industry. Third-party financial service providers are the building blocks of the open banking system, which is gaining global traction.
These fintechs enable customers to control their data while allowing financial institutions to deliver innovative products. While open banking has achieved faster adoption in the UK than in the U.S., the model is steadily advancing worldwide.
“The idea of having open access via APIs to data and to accounts—that’s not going to go away,” James Wester, Co-Head of Payments at Javelin Strategy & Research told PaymentsJournal. “It may change based upon the way regulations are crafted and the way the market develops, but at its core, that open-banking paradigm where you and I have access to our bank account and to the data—that’s going to continue. Customers want that, small business customers want it, and commercial clients want it.”
