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Monday, 8 August 2016

Consultation on Transposing PSD2 In the UK and Loads Of Other Stuff

Just when you thought it was safe to go on holiday, the Treasury let's slip that it will begin a 6 week consultation on transposing PSD2 in August, which is a bizarrely short time frame and awkward time of year, given the issues and scale of uncertainty involved.  

Kind of makes it tough to engage with clients, and for clients to engage the right management and staff internally.

Maybe that's the point?

Meanwhile:

At this rate, we'll have between Christmas and New Year to consider the regulatory implications of Brexit.

Monday, 11 July 2016

#FinTech Service Providers Must Proactively Support FCA Compliance

The FCA has finalised its new guidance to authorised firms on outsourcing to the 'cloud' and other third party IT services, which is mandatory for some firms but (strongly) advisory for others. Unfortunately, exactly what amounts to 'outsourcing' remains grey and short of examples, as do important issues such as the meaning of 'cloud' (largely a marketing term anyway), whether access to data centres is necessary and so on. Not only does that leave FCA staff and finance firms in doubt, but it leaves service providers exposed to the need for financial firms to suddenly switch providers where the FCA considers that guidelines should have been followed but have not been.

The FCA guidance says that outsourcing is "where a third party delivers services on behalf of a regulated firm". That suggests the service in question must effectively be part of the firm's service to its customers, like answering customer calls on the firm's behalf in a call centre, as opposed to, say, the supply of commercial IT hosting services for web sites, apps or back-office software etc., which the firm is not in the business of providing to customers. 

A table in the guidelines sets out an extensive process and related paper trail designed to show that a firm has outsourced a function appropriately.

So lack of clarity on the boundary between outsourcing and normal service provision means that some IT providers may not realise that a financial firm has incorrectly classified the use of its services; and/or the service provider may not be willing or able to help the regulated firm jump through the many hoops laid out in the FCA's guidance. 

As a result, service providers risk losing customers who are finance firms that have failed to grind through the FCA's requirements and have to re-run their outsourcing process.

For all practical purposes, this places the burden on IT service providers to clarify the nature of their offering and make sure they are ready to help their finance customers either explain why there is no outourcing or demonstrate compliance with the FCA's outsourcing guidelines.

Some might observe that this represents regulatory 'scope creep', since it effectively subjects outsourcing providers to FCA regulatory requirements even where they are not required to be authorised (and may even be based outside the UK). Whether this is ever challenged as being ultra vires - beyond the FCA's powers - remains to be seen, but it is certainly a cost of doing business with UK financial firms.


FCA Calls For Input On #P2Plending and #CrowdInvestment Rules

It's been two years since the FCA created specific rules governing peer-to-peer lending and crowd-investment in securities, and the FCA promised a review of those rules in 2016. That review has just begun with a call for input closing on 8 September. 

This comes at an important time for the industry, as the FCA's report reveals that it has only processed 9 of 97 applications for authorisation by P2P lending platforms (44 of which operate under a two year old interim permission) and only 9 firms have been authorised to join the 25 firms that were operating in the crowd-investment market during the FCA's interim review in 2015. This shows that the FCA authorisation process, and regulation itself, are significant 'choke points' in the development of innovative financial services, notwithstanding firm support for the sector from the Treasury and strong growth in supply and demand from consumers and small businesses on existing platforms. 

It remains to be seen whether the FCA will further complicate life for crowdfunding entrepreneurs and their customers or clear the regulatory path to facilitate the growth of alternatives to the declining supply of bank finance, likely to worsen post-Brexit...


Wednesday, 22 June 2016

Humans At The Heart of FinTech

My article on this theme has been published by the Society of Computers and Law in connection with the IFCLA conference, where I participated on a panel discussing disruptive technology in financial services. 

It is interesting to see how people's belief in the 'efficient market' and appeals to the authorities for help when things get out of hand is playing out in the context of the Ethereum project and the DAO!


Friday, 13 May 2016

European Commission Raids The #Cookie Jar Again... and Again

Hard on the heels of the General Data Protection Regulation, the European Commission is having another crack at cookies, which now crumble quite differently to the way they did in 2009, or in 2002 for that matter.

Don't worry. This time the boffins will get it right... until the next time.

That's the joy of regulating really innovative technology in really detailed, prescriptive ways - it's the gift that keeps on giving!


EC Boils Consumer Law Ocean On Eve of #Brexit Referendum

Perfectly timed to coincide with a peak in frustration with EU red tape, the European Commission has just published its plan to ruin everyone's summer consultation on the 'fitness' of six consumer directives, and is also busy reviewing a seventh (the Consumer Rights Directive):
Try to avoid falling asleep in the sun!

Will this result in less red tape? I could hazard a guess, but we won't really know until it's too late. The Commission reports its findings in mid-2017.


Thursday, 14 April 2016

Revenge Of The Trilogues

They sound like something from a sci-fi horror movie, but the Trilogues are actually already among us. In an excellent article, Vicky Marissen, MD of PACT European Affairs, has explained how these "three-way discussions" have moved further and further away from their rightful place in the latter part of the ordinary European legislative procedure and are now being used informally as a legislative shortcut - something the new EU agreement seems likely to make even worse.

Relying more on trilogues means that about 90% of EU legislation is adopted on first reading without any genuine legislative debate; and secondary legislation is being used to kick more sensitive cans down the Rue du Luxembourg. Indeed, trilogues are now happening within just a few days of each other without publishing the changes agreed, so it's impracticable for those outside the trilogues to follow or attempt to engage in what is really a closed debate. This was a frequent problem in the course of agreeing the new Payment Services Directive, for example.

The recent EU institutional agreement on better regulation won't fix this, as the Commission is able to use its participation in trilogues to (wrongfully) assume the role of legislator - note that its proposal for better regulation didn't even mention the word "trilogue" and merely stated that "The three institutions will ensure an appropriate degree of transparency of the legislative process, including of trilateral negotiations between the three institutions." If anything, that agreement promises more informal trilogues:
"Where appropriate, the three institutions may agree to coordinate efforts to accelerate the legislative adoption process, both during each institution's internal preparatory steps and during the inter-institutional negotiations."
Not only does this increasingly closed shop raise the risk of poor, ill-considered drafting that creates costs for the broader community, but the mere perception of an opaque process also widens the gap between EU legislators and EU citizens - a gap that is already wider than the one between national legislators and their citizens.

The EU's legislative process needs to be more transparent than national processes, not less, if the EU is to be respected or seen as a Good Thing.

I'm amazed the Brexit fans aren't sounding the alarm over this...

Oh, wait, no I'm not. The Brexit 'debate' is pure politics, not connected to anything real.