Answer ... Fintech continues to grow in the United Kingdom and signs of growth and investor interest show little sign of stopping. Although previously focused on payments and banking, there is now a broader spread of fintechs in several different areas, including the use of cryptocurrency and tokenised assets. Incumbents have been taking notice, with 82% of incumbents expected to increase fintech partnerships in the next few years, according to the Department of International Trade.
Over the next 12 months, key regulatory developments to monitor include the following:
- Brexit: There is uncertainty over what the financial services legal landscape will look like in November or beyond. Although it is likely that the European regulatory regime will continue to be followed (at least in the short term), there is a risk that the uncertainty will have a negative impact on fintech resource and talent in the United Kingdom.
- Fifth Anti-Money Laundering Directive (AMLD5): The amendment to AMLD4 will introduce a definition of ‘virtual currency’ and will require certain cryptocurrency businesses (including exchanges) to conduct enhanced anti-money laundering checks on users similarly to banks and other financial institutions.
- Strong customer authentication (SCA): the second Payment Services Directive was due to be fully implemented in September 2019, requiring payment service providers to implement a two-factor authentication process to authorise payments. However, the European Banking Authority is allowing a degree of tolerance for delayed SCA implementation. The Financial Conduct Authority (FCA) has announced an 18-month plan up to 14 March 2021 for e-commerce card transactions and phased implementation for online banking by 14 March 2020.
- FCA approach to crypto: The FCA is actively engaging on cryptocurrency regulation, having provided a policy statement clarifying how certain cryptoassets might be regulated. The FCA has also indicated concerns over the selling of tokenised derivative products to retail customers.