The City regulator is developing plans for a “regulated nursery” to support firms post-authorisation, and is looking at how search engines and social media firms advertise investment opportunities.
Speaking at Fintech Week, Nikhil Rathi (pictured), chief executive of the Financial Conduct Authority (FCA), said the regulator will draw on lessons from its Project Innovate, which was set up in 2014 to support innovation, to take forward recommendations for a scalebox as set out in the Kalifa Review.
Rathi said that more than 500 highly innovative firms and 137 companies have already passed through the FCA sandbox, in which new innovative ideas are safely tested before reaching the market. By Autumn, the regulator will develop plans to create a regulatory ‘nursery’.
He said this will create a period of enhanced oversight as those newly-authorised firms develop and get used to their regulatory status.
“Currently, firms gain regulatory status and are treated in the same way as a firm with a long track record,” said Rathi.
“The regulatory nursery will keep us in close contact with firms immediately post-authorisation so we can provide support and, where we need to, intervene earlier to steer firms in the right direction.
“Additionally, we will shortly begin allowing year-round applications for the sandbox and better advertise the support we already offer those firms looking to build out their innovative offering.
“We will help connect scaling entities with our international peers, through the Global Financial Innovation Network, which now includes over 60 organisations committed to supporting financial innovation in the interests of consumers.”
Rathi said in a low interest rate environment, the FCA has seen a growing number of investors search for better returns online and many of these investment opportunities prove too good to be true.
He said that previously online platforms were exempt from the financial promotions regime and this exemption was removed when the UK left the EU.
Rathi said the FCA sees no reason why different standards should apply to a search engine or social media compared to a newspaper and if these platforms choose to display and profit from adverts for risky – and in some cases fraudulent – investments, they should also comply with financial promotions rules.
This follows an FCA study in March which found that there is a new, younger, more diverse group of consumers investing in high-risk investments who relish the challenge, competition and novelty of investing and rely more on YouTube and social media for tips and news.
“Consumers shouldn’t be subject to lower standards, or greater risks, because they find an investment online,” said Rathi.
“We’re looking at how social media platforms are adapting to these new rules. If needed, we will take action. Consumers – and firms – benefit when financial promotion rules apply fairly to both digital and more traditional media.”