UNITED KINGDOM Trends and Developments Contributed by: James Burnie, Chris Elwell-Sutton, Tom Goff and Thomas Hulme, gunnercooke llp
gunnercooke llp 1 Cornhill London EC3V 3ND United Kingdom Tel: +44 755 737 1480 Email: James.Burnie@gunnercooke.com Web: www.gunnercooke.com
A New Dawn of Fintech Fintech generally refers to a group of technologies and business models that challenge existing financial services, compelling the industry to improve or risk being displaced. Each fintech, therefore, generally has as its genesis a core development that triggers a wave of innovation, creating an ecosystem of innovation around a core theme, which traditionally has centred around areas such as insurtech, robo-advice, pay - ments and consumer finance. That genesis is often rooted in a shortcoming of more established financial services, and in that sense fintech is very much the child of the industry it seeks to disrupt. As successive waves of fintech mature, they tend to be absorbed into the financial services mainstream. As older fintech have effectively graduated into the realm of traditional financial services, new technologies take their place. In this respect, two new technologies, once the domain of a select cognoscenti, have been rapidly gaining pace and credibility, steadily becom - ing the mainstream drivers of current fintech develop - ments: AI and blockchain. These technologies, whilst both young, are at different stages of growth. Blockchain and crypto, which have somewhat a Dr Jekyll and Mr Hyde reputation, are effectively coming to the end of their rebellious teenage years. New regu - latory frameworks seek to curb the worst excesses of crypto, with the aim of enabling consumers to benefit from the advantages of the new innovation. This tech - nology has often had a difficult relationship with exist - ing businesses, not helped in terms of its purported potential to replace them. As a technology, therefore, it has often been driven by consumer demand – in particular in terms of its perceived ability to generate wealth, often through creating (artificial) scarcity.
AI can in some ways be characterised as the new - born of fintech. Unregulated in many jurisdictions, its potential is still relatively unknown; however, it is likely to be significant. In some ways the antithesis of crypto, the value in AI is often in its ability to reduce resource cost, speeding up and automating tradition - ally labour-intensive tasks. In this respect, many busi - nesses are keen on utilising AI. What is particularly exciting about both new technolo - gies is their ability to completely reshape the play - ing field. Previous fintech innovations were generally tweaking an existing world into improvement; how - ever, the new technologies do not fit neatly within an existing framework. Therefore, how law makers and regulators react to them has the ability to make a huge difference to their adoption and to their knock- on effects on different economies in general. David or Goliath? As a general rule, rule-makers globally seem to agree that innovation is to be encouraged whilst consum - ers (and the financial system generally) are to be pro - tected. What they do not seem to be able to agree on is what that actually means, and so, whilst different jurisdictions wish to be an economic Goliath, they have very different approaches as to achieving this outcome. In the EU, the general approach could be charac - terised as “regulate to innovate”. The logic is that there is a first-mover advantage in regulating industry quickly, so that firms quickly have a solid framework within which to operate. The argument is that firms are encouraged by the legal certainty of having a regula - tory framework in place, and consumers are encour - aged to work with fintechs when they feel that there
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