The document outlines the agenda and key points discussed in a UK fintech market webinar, covering regulation, impacts of Brexit, and the role of the Department for International Trade in supporting financial services. It highlights the regulatory framework governing fintech in the UK, including the need for authorisation for firms conducting regulated activities, and the initiatives taken by regulatory bodies to foster innovation. The document also details the opportunities and challenges facing the fintech sector in the context of Brexit, as well as the UK's reputation as a leading financial hub.

1. THE UK FINTECH
MARKET

2. Agenda
1. Welcome and introduction of the DIT Financial Services
2. Regulation of the UK Financial Sector
3. The impact of regulation on the FinTech sector
4. UK Regulatory Initiatives
5. FinTech bridges
6. Impact of Brexit on FinTech
7. Q&A
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3. What we do
The DIT – Financial Services team supports and promotes the UK
financial and professional services industries focusing on:
• FinTechs
• Insurance & Reinsurance
• Asset Management
• Legal and Professional Services
3

4. How we do it
Matchmaking services
Legal SupportPolitical/Economic
analysis
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5. Department for International Trade (DIT) Webinar
The UK FinTech Market
20 January 2017
Harry Eddis

6. STRICTLY CONFIDENTIAL
Regulation of the UK Financial Sector

7. 7
Regulators and Regulations – Europe & UK
•FSMA
•Regulated Activities
Order
•FCA/PRA Handbooks
•PSRs
•Consumer Credit Act
•MiFID
•EMIR
•CRD/CRR
•AIFMD
•PSD
•Consumer Credit
Directive
•Bank of England
•PRA
•FCA
•Payment Systems
Regulator
•European Commission
•ESMA
•EIOPA
EU
Regulators
UK
Regulators
UK
Regulation
EU
Regulation

8. 8
UK Regulatory Framework
> FSMA 2000 is the key statute (with some key changes in Financial
Services Act 2012) with a number of statutory instruments
> The General Prohibition - Firms carrying out a “regulated activity in the
UK must be authorised or exempt from authorisation” (section 19
FSMA)
> An activity is a regulated activity in the UK if:
1. It is an activity of a specified
kind
3. It is carried on by way of
business
2. (For most activities) it relates to
an investment of a specified kind
4. It is carried on in the UK
5. No exemption is available:
a wide range of exemptions may be available for certain activities or certain persons (e.g. purely intra-
group activities are typically exempt).

9. 9
Regulated Activities and Investments in the UK
Typical Specified Investments Typical Specified Activities
Deposits Accepting deposits
Shares Dealing in investments as principal or agent
Debentures Arranging deals in investments
Units Custody of investments
Warrants Advising on investments
Certificates Sending dematerialised instructions
Options Operating a multilateral trading platform
Futures Operating a collective investment scheme
Contracts for Differences Administration of insurance contracts
Insurance Policies Entering into regulated credit agreements
Mortgages and consumer loans Entering into regulated mortgage contracts

10. 10
Who is an authorised person?
> If not exempt, authorisation is required (otherwise offences in FSMA, leading to fines and/or imprisonment)
> “Authorised person” is a firm which has a “Part 4A permission”
> Apply to appropriate regulator:
> Public register of authorised persons (https://register.fca.org.uk/)
PRA
Insurers
Banks
Designated investment firms
(“Dual-regulated firms”)
Assessed by PRA from prudential
perspective and FCA from
conduct perspective
PRA requires FCA’s consent
FCA
Other firms

11. 11
Consequences of regulatory authorisation in the UK
> Bound by Rules and Guidance set out in FCA Handbook (arranged in Sourcebooks
and Manuals)and, if applicable, PRA Rulebook
> Subject to oversight (and possibly inquiry and enforcement action and related
sanctions) by the FCA and, if applicable, the PRA
> Regulatory rules and supervision in relation to the following modules (not exhaustive):
Conduct of
Business
Systems and
Controls
Prudential
Requirements
Fitness and
Probity
Custody of
Cash/Assets
Market Abuse
Regulatory
Reporting
Training and
Competence

12. Impact of Regulation on UK FinTech Sector

13. 13
London as a FinTech Hub
Source: Deloitte, “The Connecting Global FinTech: Hub Review 2016”
London has the world’s largest
financial services sector,
supported by a booming tech
sector. The ecosystem has the
“Fin” of New York, the “Tech” of
the US West Coast and the
policymakers of Washington, all
within a 15 minute journey on
public transport. These factors
make London one of the
greatest connected global cities
in the world with the key
ingredients for digital success:
capital, talent, regulatory and
government support and
demographic diversity.
“
”

14. 14
What is the role of financial regulation in the growth of
FinTech?
> Challenges to traditional regulation
and the UK’s FCA response
> Traditional regulation of financial
services is being challenged
> Regulators have to reconcile how to
apply existing regulation to new
products and services likely not
event contemplated when the
regulation was drafted (bearing in
mind its statutory objective to protect
consumers)
> Whilst promoting competition
(another of its statutory objectives)
and fostering innovation

15. 15
How is FinTech Regulated in the UK
 FinTech itself is not subject to a specific regulatory regime
 Law/regulation applies to FinTech solutions in the same way as it does to non-
FinTech solutions
 Therefore, if a firm used FinTech as a platform for carrying out a regulated
activity in the UK in relation to a specified investment, that activity will be
regulated and the firm will need a licence to carry out the activities
 So, for example, a firm that establishes a FinTech system to record ownership of
properties would not be regulated as properties are not specified investments
and the firm would not be carrying out a regulated activity (see above)
 However, a FinTech-based platform for dealing in shares or bonds would involve
the carrying on of regulated activities and firms involved would need to assess
whether they need a licence

16. 16
Fintech – is law/regulation a help or hindrance?
BUT: what of law and regulation?
• law/regulation is generally written on a backward-looking basis
• law/regulation can take time to catch up
• There can be a benefit to being regulated: e.g. reputation
• Client-facing vs pure support services?
So: what are some of the key legal/regulatory barriers?
• the requirement to be authorised to provide investment services
• legal enforceability (e.g. smart contracts)
• regulatory priorities

17. 17
Potential for regulatory change…
FCA focus on Financial Innovation
 Innovation Hub
 Regulatory sandbox
HMT Consultation Paper on draft innovation for financial services
 Consultation on whether UK regulatory environment effectively supports innovation
Bank of England Digital Currency Team
 Currently researching possibilities of central bank virtual currency
ESMA Discussion Paper
 Examines potential impact of distributed ledger technology on the securities market
Analogies
 Crowd funding
 Electronic Signatures Regulations 2002

18. UK Regulatory Initiatives

19. 19
FCA Project Innovate
 This FCA project commenced in October
2014 and assisted 175 firms with
development
 FCA provides direct support and early
engagement with innovative firms in the
sector
 E.g. WealthKernel used the Innovation
Hub to develop its automated wealth
management solutions business
 Criteria for support: genuine innovation,
consumer benefit, background research and
need for support

20. 20
FCA Regulatory Sandbox – Background
 Launched spring 2016 as the next step of
Project Innovate
 The sandbox allows for the testing of
innovative products in a safe space:
 Reducing time to market
 Better access to finance
 Waivers or modification of rules
 The FCA provides individual guidance and
develops safeguards
 First cohort closed on 6 July 2016.
 24 successful applications out of 69.
 Application deadline for cohort two was 19
Jan 2017

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Regulatory Sandbox – Participation
 Applications must demonstrate the following criteria:
 Significant UK nexus
 Genuine innovation
 Consumer benefit
 Need for sandbox testing
 Evidence of background research
 Readiness for testing in live environment
 Testing on each project will be conducted for 3-6 months
 There will be ongoing monitoring and weekly reporting to the FCA

22. 22
Regulatory Sandbox – Cohort One Examples
Firm Description
Billon An e-money platform based on distributed ledger technology that facilitates the secure transfer and holding of
funds using a phone based app.
BitX A cross-border money transfer service powered by digital currencies / blockchain technology.
Blink
Innovation
Limited
An insurance product with an automated claims process, which allows travellers to instantly book a new ticket
on their mobile device in the event of a flight cancellation.
Bud An online platform and app which allows users to manage their financial products, with personalised insights,
on a single dashboard. Bud's marketplace introduces relevant services which users can interact with through
API integrations.
Citizens
Advice
semi-automated advice tool which allows debt advisers and clients to compare the key features of available
debt solutions.
HSBC An app developed in partnership with Pariti Technologies, a FinTech start-up, to help customers better
manage their finances.
Otonomos A platform that represents private companies’ shares electronically on the blockchain, enabling them to
manage shareholdings, conduct bookbuilding online and facilitate transfers.
SETL A smart-card enabled retail payment system based on their OpenCSD distributed ledger.
Tramonex An e-money platform based on distributed ledger technology that facilitates the use of “smart contracts” to
transfer donations to a charity.

23. 23
Bank of England FinTech Accelerator
 Launched June 2016 by Mark Carney
 The Bank will work in partnership with FinTech firms to develop new approaches to the delivery of the
Bank’s mission and operations
 The Bank will appoint FinTech firms to run short Proof of Concept projects in a number of areas,
including blockchain
 Two cohorts of firms have been selected
 Applications for next cohort will open in Spring 2017
 Areas of priority for the Bank are:
 Metadata management tools
 New tools to manage and harvest business rules (including rule languages) that are embedded in
systems
 Security tools that protect data at rest and in transit
 Innovative tools for data cleansing, for example for text strings, and anomaly, trend or changing
behaviour detection, particularly in transaction reporting data sets
 Competitive and transparent selection process based around a Proof of Concept designed by the Bank.
 No requirement for firms to be based in the UK

24. FinTech Bridges

25. 25
FinTech Bridges
 Co-operation agreements between regulators aimed at:
 Encouraging foreign direct investment flows in FinTech between two countries
 Improving information flows between regulators
 The UK has currently signed co-operation agreements with:
 Each co-operation agreement subject to negotiation between the FCA and local overseas
regulator so will be framed differently
 UK government commissioned EY report on opportunities for FinTech investment in China and
the UK in advance of the co-operation agreement
ASIC MAS PBCFSC HKMA

26. Impact of Brexit

27. 27
Brexit: Timing
UK voters decide that the
UK should leave the EU
23 June 2016
EU referendum:
‘Should the United
Kingdom remain a
member of the EU or
leave the EU?’
A vote to leave does
not equal immediate
departure: No
immediate impact on
legislation, although
government will have to
decide:
a) when to serve
withdrawal notice
b) its withdrawal
negotiation
objectives
Article 50 notification: No
provision on timing of serving
withdrawal notice.
Constitutional issues?
March 2017?
2-year negotiation period
of the terms of UK
withdrawal: could be
extended only by
unanimous agreement of all
Member States.
Withdrawal agreement (or
agreements) signed.
Still negotiating (with
approval of all Member
States)
or
New arrangement in place
March 2019?
or
No agreement. All treaty
rights and obligations
lapse. WTO terms apply.

28. 28
Brexit: Challenges and Opportunities for Fintech
Challenges
Impact of uncertainty on investment
Risk of London losing ground as financial
centre?
Increased protectionism in the EU?
Loss of access to EU’s 400+ consumers?
Increased competition from outside EU?
Restrictions on freedom of movement and
access to talent?
Loss of access to key EU FMIs (e.g. Target
2)
Opportunities
Opportunity for bespoke FinTech regulatory
regime and a reduction in regulatory
complexity
Increased global trade with non-EU
countries?
Ability to offer incentives to FinTech sector
(e.g. tax incentives, subsidies etc.)
New immigration system may look
favourably on high-tech talent
London will continue to be a global financial
centre
Increased demand for innovative solutions?

29. 29
Questions?

30. 30
Linklaters LLP
One Silk Street
London EC2Y 8HQ
Tel: (+44) 20 7456 2000
Fax: (+44) 20 7456 2222
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31. Contact
For further information or questions, please contact our team:
Chetna Patel | Head of Financial Services Latin America |
Department for International Trade |British Consulate-General São Paulo
Tel: +55 11 3094 1883 | E-mail:chetna.patel@fco.gov.uk
Tássia Frade | Business Development Manager - Financial Services |
Department for International Trade | British Consulate-General São Paulo
Tel: +55 11 3094 2755 | E-mail: tassia.frade@fco.gov.uk
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