UK – Page 7 – FinTech and Blockchain Law Watch

Competition concerns in the payment systems market

Jan 16 2017

The UK’s Competition and Markets Authority (CMA) has found that Mastercard’s acquisition of VocaLink gives rise to UK competition/anti-trust concerns. Mastercard UK Holdco Ltd, a subsidiary of Mastercard International Incorporated (Mastercard), is buying VocaLink Holdings Ltd (VocaLink).

Mastercard already owns and operates credit and debit card schemes Mastercard, Maestro and Cirrus, and has also bid to supply infrastructure services to UK interbank payment systems. VocaLink is a supplier of payment infrastructure services to three major UK interbank payment systems:

Bacs, the automated clearing system allowing credit and debit payments between bank accounts;
the Faster Payments Service (FPS), which enables near ‘real-time’ payments between bank accounts within the UK; and
the LINK ATM network.

Update on post-implementation review of UK loan and investment based crowdfunding market

Jan 12 2017

By Jonathan Lawrence

The UK’s Financial Conduct Authority (FCA) has given an update on the post-implementation review of the UK loan-based and investment-based crowdfunding market since current rules came into force in April 2014. The FCA says it believes it is appropriate to modify a number of rules for the market.

For both loan-based and investment-based crowdfunding platforms the FCA has found that, for example:

it is difficult for investors to compare platforms with each other or to compare crowdfunding with other asset classes due to complex and often unclear product offerings;
it is difficult for investors to assess the risks and returns of investing on a platform;
financial promotions do not always meet the FCA’s requirement to be ‘clear, fair and not misleading’; and
the complex structures of some firms introduce operational risks and/or conflicts of interest that are not being managed sufficiently.

In the loan-based crowdfunding market in particular, the FCA is concerned that, for example:

certain features, such as some of the provision funds used by platforms, introduce risks to investors that are not adequately disclosed and may not be sufficiently understood by investors;
the plans some firms have for wind-down in the event of their failure are inadequate to successfully run-off loan books to maturity; and
the FCA has challenged some firms to improve their client money handling standards.

The FCA plans to consult on more prescriptive requirements on the content and timing of disclosures by both loan-based and investment-based crowdfunding platforms. For loan-based crowdfunding the FCA also intends to consult on:

strengthening rules on wind-down plans;
additional requirements or restrictions on cross-platform investment; and
extending mortgage-lending standards to loan-based platforms.

The FCA’s ongoing research and investigatory work should be completed early in 2017. At that stage, the FCA will determine whether further consultation on rule changes is needed.

For the full feedback statement, please click here.

Retailer invests in FinTech

Jan 05 2017

By Jonathan Lawrence

UK department store company House of Fraser is to invest £35m in Tandem, an app-only challenger bank. The move will enable House of Fraser to offer online banking services to shoppers.

Tandem was founded in 2014 and received its UK banking licence a year ago. It has already raised over $30m from investors, including eBay co-founder Pierre Omidyar. Founded in 2014, Tandem raised £1m last year in a crowdfunding campaign, valuing it at £65m.

Tandem competes with other new app-only start-up banks, dubbed “neobanks”, including Monzo, Starling and Atom. It currently offers a savings tool that lets people monitor spending on any bank account. It began rolling out its app in November 2016 and plans to launch credit and debit products in 2017.

House of Fraser was acquired by Chinese conglomerate Sanpower in a £480m deal in 2014. While the company already offers credit and loyalty cards through NewDay, the ability to offer app-only online banking services is a departure that could see other UK retail multiples follow suit.

UK FCA to publish consultation paper on new rules for investment and loan-based crowdfunding platforms

Jan 05 2017

By Tom R. Wallace

In December 2016 the UK FCA published a statement of its intention to publish a Consultation Paper in Q1 2017 proposing new rules for investment and loan-based crowdfunding platforms.

Based on information the FCA has gathered through a consultation ending in September 2016 and its supervision and authorisation of crowdfunding platforms, the FCA’s view is that aspects of the crowdfunding market currently pose some risks to its objectives. The FCA perceives risk of regulatory arbitrage in the loan-based sector, and potential for investors to misunderstand the nature of the products offered. While respondents to the FCA’s request for feedback rightly note that many of these risks existed when the FCA established the current crowdfunding regulatory framework in 2014, the FCA counters that the market has grown in significance and complexity since then.

While investment-based crowdfunding is facilitated entirely by fully-authorised firms, most loan-based crowdfunding firms, including the largest ones, have so far operated under interim permissions. The FCA notes that, while it has identified some issues about the investment-based crowdfunding market, most of its attention at this time is on issues in relation to loan-based crowdfunding.

Taken together with its other statements on the crowdfunding sector, the FCA is giving an indication of its perspective on the issues associated with the #crowdfunding market and, pending publication of consultations on the new rules, incumbents and innovators should take care to create legal, operational and compliance structures that are likely to align with the FCA’s direction of travel in this market.

The FCA frame this as an evolution of the existing regulatory framework, not a revolution, and I find the FCA’s depth of the knowledge about, objectives for and focus on the market to be a source of optimism for the future of the crowdfunding market in the UK for investors, incumbents and innovators.

UK and Hong Kong sign cooperation agreement

Dec 14 2016

By Jonathan Lawrence

FinTech companies and other innovative financial businesses will be given help to establish overseas operations in the UK and Hong Kong by regulators in those countries under a new cooperation agreement signed in London on 9 December 2016. Under the agreement, the UK’s Financial Conduct Authority (FCA) and the Hong Kong Monetary Authority (HKMA) will “refer to each other innovator businesses that would like to operate in the other authority’s jurisdiction”.

Upon a referral being received, the FCA or HKMA both intend to “assist the innovator businesses in understanding the regulatory regime” that they oversee and explain “how such regimes may be relevant” to those companies. The agreement also confirms that the FCA and HKMA intend to “share information about innovations in financial services in their respective markets”, such as on emerging trends and regulatory issues pertaining to innovation. The FCA and HKMA may also pursue “joint innovation projects on the application of novel financial technologies”, share expertise and knowledge, and facilitate staff secondments to one another, under the new cooperation agreement.

UK Department for International Trade announces FinTech mission to Australia

Dec 07 2016

By Jonathan Lawrence

The UK’s Department for International Trade (DIT) has announced its first FinTech mission to Australia taking place in Sydney and Melbourne from 20-23 March 2017.

DIT will select 8-12 UK FinTech companies to participate in the mission to Australia where they will participate in a programme of events and activities. Delegates will spend two days in Sydney, two days in Melbourne and an optional fifth day in Australia or New Zealand. The delegates will meet with and pitch to Australian financial institutions and venture capital firms, visit FinTech hubs, meet the regulator and government ministers, network with the Australian FinTech community, hear from UK FinTech companies that have found success in Australia and schedule meetings with potential customers and partners.

British Consul General in Sydney and Director-General UK Trade & Investment for Australia and New Zealand, Nick McInnes said: “We are very pleased to have the opportunity to bring a group of UK FinTech companies to Australia for the first time and introduce them to the local market. While FinTech in Australia is still in relatively early stages, the industry is growing rapidly and there are many opportunities for UK companies to set up, collaborate and succeed. The FinTech market in Australia is forecast to grow to over AU $4 billion by 2020, of which AU $1 billion will be completely new added value to the Australian economy, so now is an ideal time for UK companies to enter the market”.

For more details, please click here.

UK Supreme Court to stream live today on future of Brexit

Dec 05 2016

By Judith Rinearson

The Fintech world is strongly impacted by Brexit, with the ability to access financial markets easily an important factor for disruptors. No doubt they, like many of us, have a keen eye on the speed in which Brexit can occur.

On 3 November 2016, the High Court in the UK ruled that the Prime Minister cannot trigger Article 50 (the notification that triggers the process of the UK leaving the EU) without the leave of Parliament. The decision was appealed, and the Supreme Court (the highest appellate court in the UK) will hear the matter starting today, 5 December. The four days of hearings will be streamed live from the Supreme Court’s website (click here).

There will be eleven justices hearing the matter, which (according to the UK’s non-profit Full Fact organization) will be the largest panel of judges to have heard a single appeal—since the Supreme Court’s predecessor was established in 1876. There are some interesting potential outcomes of this process, including the possibility that the matter will need to be referred to the Court of Justice of the European Union to interpret Article 50.

Please note that even if the Supreme Court sides with the High Court, and decides that the Article 50 notification requires an Act of Parliament, it will still be for Parliament to decide whether or not they want to confirm and continue with the referendum’s Brexit result, or attempt to impose terms on the triggering of Article 50 (which some say is not possible), or reject it altogether. These are interesting times in the UK. We will be watching these developments closely.

FCA identifies that many consumers cannot access the financial services they need

Nov 09 2016

By Jacob Ghanty

On 1 November 2016, the FCA published an “Occasional Paper” concerning access to financial services in the UK. In it the FCA highlights that potentially millions of UK consumers cannot use the services that would help them meet their financial needs and get involved more widely in financial markets and the economy. The FCA argues that access problems do not affect just the vulnerable (as has been identified in the past)- it also affects consumers across the spectrum. Examples of access issues include: inconsistent information and long delays in setting up bank accounts; inability to find travel insurance for people with identified health issues; and being declined for a mortgage because of difficulty proving the source of an inheritance.

The FCA highlighted numerous possible causes of problems with access, including financial institutions having inflexible process requirements for customers who have slightly unusual needs, use of jargon creating a barrier to consumer engagement with products or services and issues for consumers with poor digital literacy or limited internet access having increasingly limited choice. Rather than providing solutions, the FCA aims to begin a new conversation about financial services access issues. The FCA does not put a precise figure on the number of people affected in the UK by access issues, but given the broad range and type of issues identified, the number of individuals potentially affected by access issues may run to many millions. The issues laid out by the FCA serve as a useful basis for some firms to identify where access issues may exist in their own businesses and could be useful starting point towards addressing those issues

A borrower referral scheme may increase competition for SMEs

Nov 03 2016

By Jonathan Lawrence

From 1 November 2016, nine of the UK’s biggest banks will be obliged to pass on the details of small businesses they have rejected for finance to three internet-based finance platforms – Funding Xchange, Business Finance Compared and Funding Options. These platforms will then share these details with alternative finance providers and go on to facilitate a conversation between the business and any provider who expresses an interest in supplying finance to them.

Royal Bank of Scotland, Lloyds, HSBC, Barclays, Santander, Clydesdale and Yorkshire Bank, Bank of Ireland, Danske Bank and First Trust Bank, will all have to offer access to these finance platforms, with small businesses having to give their permission before their details are shared.

Research had shown that 71% of UK businesses seeking finance only ask one lender and, if rejected for finance, many simply give up on investment rather than seek alternative options.

Last year 324,000 UK small and medium sized businesses sought a loan or overdraft, 26% of these were initially declined by their bank and only 3% of those declined were referred to other sources of help.

The scheme was enacted by the Small and Medium Sized Business (Finance Platforms) Regulations 2015.

In April 2016, the UK government introduced the SME credit data sharing scheme which requires banks and credit reference agencies to share SME credit information equally with all providers. This increases competition in business lending by making it easier for challenger banks and other lenders to make credit decisions on businesses to help them get the funding they need.

Are robo-advisers required to act in their clients best interests?

Oct 24 2016

By Jim Bulling and Michelle Chasser

In Australia, robo-advisers providing personal financial product advice must comply with the statutory fiduciary duty to act in the client’s best interests. The Australian Securities and Investments Commission (ASIC) has made it clear that the duty is technology neutral and applies to robo-advisers as well as traditional advisers. ASIC also clearly stated its position that robo-advisers are able to comply with the duty (Regulatory Guide 255)

Robo-advisers in the US do not currently have the same clarity as their Australian counterparts. US advisors are subject to fiduciary duties from a number of sources depending on the type of advice given and the type of adviser giving it. The Massachusetts Securities Division (MSD) has stated that robo-advisers and traditional advisers have the same fiduciary duty. However, MSD and the Securities and Exchange Commission (SEC) have raised questions over robo-advisers’ ability to comply with the duty and hold themselves out to be fiduciaries. MSD is particularly concerned that from its research it appeared to be usual for robo-advisers not to perform any significant due diligence on their client’s circumstances which is needed to make appropriate investment decisions. The SEC is currently working on a fiduciary rule for advisers with plans to release the proposal in April 2017.

In the UK, the Financial Conduct Authority (FCA) has developed the Principles for Businesses (PRIN) which includes the requirement to pay due regard to the interests of customers and treat them fairly. The FCA has stated that the PRIN applies to all regulated firms including robo-advisers. The FCA established an Advice Unit to provide particular guidance to robo-advisers in June 2016.

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