A landmark cooperation agreement has been forged between the UK’s Financial Conduct Authority and the Hong Kong Monetary Authority, which is set to enable collaboration and information sharing between the two regulatory authorities at a crucial juncture for financial regulation.
Announcing the agreement on 7th December 2016, the FCA’s website suggested that the close ties are designed to “facilitate financial innovation in the United Kingdom and Hong Kong”, and will include initiatives involving “referrals of innovative firms, joint innovation projects, information exchange and information sharing”. The handshake with Hong Kong follows the development of previous agreements with the authorities in Singapore, Australia, South Korea and China.
Clearly, the FCA sees these agreements as the way to attract the cream of overseas firms to do business in the UK. But how might this new cooperation work in practice?
The focus is clearly set to be new technologies and the innovations these can bring to the markets: the FCA’s Project Innovate, established back in 2014, enables businesses to receive tailored regulatory support via its Innovation and Advice Unit, while the HKMA set up the Fintech Facilitation Office in early 2016, to promote the Far East hub as a centre for both ‘ideas’ exchange and ‘fintech’ development. Plainly, the hope for both sides is for cross-pollination as new entrants are drawn into both regulators’ markets.
The FCA and HKMA also plan for the cooperation agreement to extend to joint innovation projects using what is described as ‘novel financial technologies’ across their mutual jurisdictions. One of the ways in which lawyers are expected to benefit is from secondments between the regulators, in addition to the sharing of expertise.
But what impact is the agreement likely to have in everyday practice? The agreement itself has been widely reported across the financial and regulatory sectors’ press; when the agreement was announced the FCA’s Executive Director of Strategy and Competition, Christopher Woollard, said that “alongside promoting innovation in UK businesses, we also want to see the best firms from around the world coming to the UK”.
So in line with the FCA’s operational objectives – to secure appropriate protection for consumers, to protect and enhance the integrity of the UK’s financial system and to promote effective competition in the interests of consumers – a key objective for the FCA/HKMA deal appears to further open the market to overseas firms. In the light of the questions posed by the Brexit situation and the issue of whether some international firms may in future choose to place their European business outside the UK, the FCA appears to be positioning to reach out to the Far East in particular to promote the idea that the UK is open to new fintech business.
At the time of the deal being signed, City AM and other financial news outlets reported that extending the “fintech bridge scheme” was seen as one of the paths through which the fintech sector could continue blazing a trial in the post Brexit climate (read article here).
The FCA/HKMA deal was struck against a background in which the UK regulator has expanded its fintech staff base tenfold within the preceding two years. The regulatory environment in the UK, set up as it is to favour innovation and broaden business horizons, is credited with pushing the country to being a fintech world leader.
The importance of the fintech base to the UK economy was recognised in the 2016 Autumn Statement when, as City AM’s Lynsey Barber reported, the Chancellor unveiled a number of measures to further boost the sector (read article here).
So far as Project Innovate is concerned, the FCA’s ‘regulatory sandbox’ – the ‘safe space’ within which businesses can test new products and services under the FCA’s eagle eye – was the first in the world and has been leading the way for firms to develop their business models and delivery mechanisms in a ‘live’ environment.
Now it seems that this has been one of the main attractions for the HKMA. Executive director Shu-Pui Li said at the time of the deal being confirmed: “Collaboration between the HKMA and the FCA will create significant synergy for the two markets by enabling fintech firms and financial institutions to extend their global reach and learn from their foreign counterparts.”