Fieldfisher examines potential for UK-NZ Fintech collaboration
On Friday 13 July, Fintech specialists from across Fieldfisher's Tech, FMP, Competition, Regulatory teams hosted a breakfast discussion with guests from the New Zealand Trade and Enterprise (NZTE) delegation visiting London as part of London Fintech Week.
Discussions were led by Partners John Cassels and James Walsh, Director Chris Eastham and Associates George McLellan (New Zealand-qualified) and Simon Lafferty.
Topics covered included:
The challenges and opportunities for UK and New Zealand Fintechs represented by the EU's General Data Protection Regulation (GDPR)
- Without the legacy data systems which are proving problematic for traditional banks and financial services institutions, Fintech companies are in a relatively advantageous position to comply with, and benefit from, GDPR provisions, thanks to the flexibility of their technology to meet GDPR requirements;
- Certain rights under GDPR, such as data portability, provide opportunities for Fintech companies to challenge major banks;
- However, Fintech firms also have to steer clear of fines, ensure all their contracts are up to date and stay on top of mandatory data breach reporting under the new data regulation;
- Kiwi Fintechs, in particular, are in an advantageous position relative to other jurisdictions as a result of New Zealand's "adequacy status" – which the country is currently seeking to preserve by updating its own data protection laws – which reduces the amount of red tape New Zealand companies have to negotiate in order to do business in Europe.
How Brexit might help or hinder foreign investment in British Fintech
- Businesses in both jurisdictions are interested in what kinds of opportunities Brexit might throw up for the UK and New Zealand; rather than focusing on the uncertainties, it is more helpful for law firms advising on this area to take a robust, evidence-based approach to what we do know about Brexit;
- There is a battle for business in the professional service markets, with other EU countries eager to entice foreign Fintechs into their own jurisdictions;
- However, anecdotally, it continues to be significantly simpler for international businesses, especially Asia-Pacific companies, to set up a business in London thanks to the local talent pool, data network infrastructures and English being the leading global business language;
- In Fieldfisher's experience, tech companies still want to be based in London so for these businesses it is about setting up a Plan B – to help them retain a base in London while ensuring they have a presence in Europe;
- It is important to remember that Brexit is a mix of politics, economics and law and different things are in the ascendancy at different times – so advice does and will change over time.
How the UK's regulatory sandbox is proving a popular test-bed for evolving Fintech services
- The UK's Financial Conduct Authority (FCA) launched its regulatory sandbox in June 2016 – as the world's first "safe" testing environment for disruptive technologies, free from the usual regulatory consequences that would otherwise affect UK Fintechs, under the supervision of the FCA;
- The sandbox is intended to reduce the time and cost of taking innovative technologies to market; improve access to finance for business owners; enable more products to be tested and ultimately marketed; and identify relevant consumer protections and ensure these are built in to new services;
- The sandbox is currently focused on businesses with operations in the UK focused on serving the UK market, so New Zealand Fintechs can in theory participate on a branch basis (as an alternative to setting up a UK entity); but there are also discussions underway about potentially establishing a "global sandbox" with the cooperation of regulatory authorities from around the world, with whom the FCA has bilateral cooperation arrangements such that firms sandbox tests could span two or more jurisdictions.
Will Open Banking and PSD2 change the way we bank?
- Open Banking is the UK version of a sweeping piece of European legislation known as the second Payment Services Directive, or PSD2, intended to get the UK's biggest banks to open up their data, which could mean big changes for the way individuals and companies use money;
- The initiative is expected to benefit challenger banks, from the UK and abroad, seeking to offer faster, more agile and cheaper ways for consumers and businesses to access products such as mortgages;
- Several different Fintech business models are starting to emerge as a result of PSD2 and it will be exciting to see how this sub-sector of the Fintech space develops and how its growth in the UK sets the pace for Fintech hubs like New Zealand to follow.