Top fintech and crypto regulation to watch in 2023
With the UK striving to strike a balance between supporting innovation and ensuring financial security within its financial systems, existing regulations have allowed many fronts to flourish in a legal gray area. The end of venture capital funding ushers in a new era for fintech, as a decade of constant, unchecked growth slows to match the smaller volumes of funding available for expansion.
The drying up of growth-centric venture capital funds has caused many fintech companies to set their sights on profitability to ensure their long-term survival. Along with this change in the business approach of fintech companies, policy makers brought in a number of regulatory fronts focusing on crypto, BNPL and open banking. However, the repeated changes in government have not helped these regulations keep up with the pace of change in the real world. Will 2023 be the year the UK finally catches up with fintech and decentralized banking?
FCA balance law
Over the past two decades, financial regulation in the UK has been driven by consumer protection, fostering innovation and creating structures that create certainty for the end user. The Financial Conduct Authority or the FCA supervises the regulations in the country. Almost a decade ago, the FCA established its Sandbox program to encourage experimentation and support fintech startups in a fail-safe environment. The FCA also creates guidelines for products and services such as P2P lending, crowdfunding and decentralized payment services. With new technologies and products emerging daily, it begs the question: is Sandbox ready for the next decade?
“The Edinburgh Reforms”
Announced in December 2022, the “Edinburgh reforms” are set to “turbocharge growth” for the UK as the most significant overhaul of banking rules in 30 years. Based on the government’s reform agenda, this overhaul aims to take advantage of the opportunities provided by the UK’s exit from the EU to tailor regulations to suit the country’s needs. A set of 30 financial services regulatory reforms is outlined for review and replacement.
One of the key changes proposed in the Edinburgh reforms aims to end the long-standing separation imposed on banks between their retail and investment arms, even in the latter’s absence. Freeing retail-focused banks from these tight regulations will allow them to offer better products to their customers while maintaining a high level of consumer protection, particularly in the case of Neobanks.
Lending
While the new Buy Now Pay Later law may not come this year, The Consumer Credit Act is likely to be reformed to bring in the biggest change to UK consumer credit law in recent times. The original 1974 Act makes very little mention of BNPL, and it is more important than ever to bring digital lending under the FCA’s remit, as many people choose these schemes without reading the details and end up in debt.
Regulation on cryptocurrency
With the initial assumption that decentralized currency would lead to higher levels of transparency being proven wrong by the number of scams, scandals and scams emerging from the crypto world, implementing regulations and compliance monitoring on crypto is high on the agenda for UK lawmakers according to to Rightlander.
Thomas Tudehope, global head of public policy for crypto exchange Luno, wrote in an article that a significant step has already taken shape in the form of an amendment tabled by Andrew Griffith MP and HM Treasury to the Financial Services and Markets Bill. This change is likely to introduce a fully comprehensive regulatory regime for cryptocurrency in 2023, according to Tudehope.
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