The Rise of UK Fintech and the Future of Fintech Law

Driven by innovation and technology, with accessible talent, expertise and funding, the UK has become an attractive destination for Fintech. Expanding rapidly since the early 2010s, the UK Fintech sector has become home to some of the largest and well-known companies in the world. Now, in terms of investment per capita, the UK is second only to Singapore on the world stage, accounting for 50% of venture capital in Fintech.  

As of 2023, there are more than 1,600 Fintech firms based in the UK and this is expected to double by 2030. However, this growth has not come without challenges, especially when it comes to concerns about UK Fintech law and regulation in the market.  

UK Fintech, Fintech law and the regulatory landscape  

While the global perspective is that UK Fintech has a well-developed regulatory landscape, in reality, there is no specific regulatory framework. However, the Financial Conduct Authority (FCA) has recognised the importance of the market and struck a balance between fostering innovation, protecting consumers and making sure companies act compliantly.  

Here are some of the ways in which that has happened: 

Regulatory Sandbox – Since its launch in 2016, the regulatory sandbox has allowed approved firms to test their products in a controlled environment and assess whether products will be attractive to customers, while also identifying the best ways to build in safeguards. This means firms can benefit from reduced regulatory barriers and have a safe place to test products. At the end of the testing period, companies can then apply for full authorisation from the FCA. 

Open Banking – The UK was an early adopter of payments technology, particularly in regards to Open Banking. Regulations have been developed here to provide consumers with more control over their data and to ensure banks share customer data with licenced third parties to encourage the development and update of Fintech products, such as payment services and lending platforms. 

The Payments Services Directive 2 (PSD2) – PSD2 has played a role in regulating digital payment services, enhancing security in electronic payments and opening up the market to new entrants. Meanwhile, Strong Customer Authentication (SCA) requirements have further improved payment security and made online transactions safer. 

CryptocurrencyCryptocurrency remains a challenging area for regulators all over the world. The UK has still to enact regulations on cryptocurrencies. However, the FCA implemented strict Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations for crypto-related businesses in January 2020. In recent months, the UK government has begun taking more action and moved to amend the Financial Services and Markets Bill to give the FCA more power, especially when it comes to regulating promotions for crypto-assets. 

FSMA 2023: the future for UK Fintech, Fintech law and regulation 

Things are changing gradually. As a result of the Khalifa Fintech Review 2021, an independent report, offering strategic recommendations on how to regulate and manage the financial sector given the ongoing development of financial technology, a number of proposals were made for UK FinTech and the digital economy. 

In June of 2023 the Financial Services and Markets (FSMA) Bill received Royal Assent and became the FSMA 2023. The Act will give new powers to the FCA, the Prudential Regulation Authority (PRA), the Payments System Regulator (PSR) and the Bank of England (BoE). The new laws will allow the repeal and replacement of all regulatory requirements stemming from EU measures and create a new regime of regulatory supervision. 

A new “Designated Activities Regime” (DAR) for the regulation of financial markets came into being on 29th August 2023. In parallel with this, regulators will now have power over third parties that provide critical services to authorised firms, service providers and FMIs (Financial Market Infrastructures). Up until now, these powers have been limited, but this will allow regulators to make rules governing services provided by critical third parties and impose disciplinary measures. 

Understand FinTech law and protect your business 

The UK continues to be one of the world’s most Fintech friendly countries, providing an attractive environment for early stage businesses in the sector, but companies must arm themselves with a full understanding of the FSM Act, UK Fintech law and regulations, and how these may affect their operations. This means getting professional legal advice from an experienced team of solicitors in this area at the outset.  

If your business is considering entering the UK Fintech market, or launching an associated product or service, take action now to protect your investment. Book a free 15-minute consultation call with JPP Law, or leave your details on our call back page. You can also talk to one of our legal experts right now on +44 (0)20 3468 3064. 

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