Navigating regulations as a fintech

Fintech is embedded in our daily lives, whether you’re paying for shopping using your credit card on Google Pay or buying stocks or crypto via digital wallets, you’re using financial technology.

Despite the volume of products and startups coming to market, launching a regulated fintech is still rather daunting for founders due to the internal knowledge requirements and regulations that come with it. But not to worry, because we’ve written the following three-part series covering a few of the basics, to help new fintechs get started.

The Heavily Regulated Fintech Sector 

Despite the size and scale of the fintech market (and it’s impressive growth forecast), the sector remains one of the most heavily regulated in the UK, and in the technology industry.

It’s vital to get to grips with the regulatory landscape you’ll need to navigate, and quickly establish a suitable regulatory base internally to be able to secure the necessary permissions you’ll need from the Financial Conduct Authority.

Fintechs are treated just like other financial services institutions, which means knowing the ins and outs of this heavily regulated (and traditional) industry and understand the laws protecting consumers and markets.

Investment platforms carrying activities under the scope of the FSMA 2000 will need to be authorised by the Financial Conduct Authority (FCA) or the Prudential Regulation Authority (PRA). 

So what’s the difference between them? 

The PRA is a financial service regulatory body formed as one of the successors of the Financial Services Authority. It’s responsible for the prudential regulation and supervision of banks, building societies, credit unions, insurers and major investment firms.

On the other hand, FCA is the conduct regulator for banks, insurers and the largest investment firms.

As an investment platform, you’ll (probably) be responsible for arranging, safeguarding and administering investments on behalf of consumers, offering them access to retail investment products. In addition, consumers might be able to use your platform to access information and tools to inform and help them with investment choices and to make transactions, such as buying and selling shares and funds (as defined by the FCA). 

According to the FCA, here are the key permissions that you would likely need to function in this industry:
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• Advising on investments 
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• Dealing in investments as agents 
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• Managing, safeguarding and administering (custody) assets 
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• Making arrangements with a view to transactions in investments
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• Operating a collective investment scheme

The permissions will differ depending on your platform and the services you choose to provide. 

Our advice is to figure out what your service offering is likely to be, and get up to speed with the regulatory permissions you’ll likely need to be able to offer it to consumers.

Speak to other fintechs that have gone through the journey themselves, or industry experts that can help you understand your regulatory requirements.

Once you’ve figured what regulatory permissions you’ll need, the next step is to figure out how to get there, and for that check out Part 2 of our fintech guide for more information on the different types of regulatory authorisations.