UK Law and Practice Contributed by: James Burnie, Kathryn Dodds, Olga Antonova and Holly Joseph, gunnercooke llp
1. Fintech Market 1.1 Evolution of the Fintech Market The fintech market has developed at pace in the United Kingdom, which is seeking to become a hub for fintech companies. A particular area of focus has been on the use of AI, and in this respect it is interesting that the UK has taken a relatively slower approach to seeking to regulate AI, which can be seen in part as the UK taking a wait-and-see approach to how the sector devel - ops. This has given the sector space in which to grow, and it is expected that a rise in AI firms will be seen in the next year. 2. Fintech Business Models and Regulation in General 2.1 Predominant Business Models The size of the United Kingdom as a financial services regulatory hub has meant that the full range of fintech firms are operating in the United Kingdom. The three largest areas of focus cur - rently seen are: • blockchain and Web3; • artificial intelligence (AI); and • payment services. 2.2 Regulatory Regime In the UK there is one core regulatory regime, set out in the Financial Services and Markets Act 2000 (FSMA), as well specific regimes for specific types of activity. The FSMA, by reference to the Financial Ser - vices and Markets Act 2000 (Regulated Activi - ties) Order 2001 (RAO), generally sets out which activities are regulated in the United Kingdom, as well as the powers of the Financial Conduct Authority (FCA) and the Prudential Regulation
Authority (PRA) (the two lead regulators for finan - cial services in the UK) in respect of their over - sight of firms conducting such activities. The main exception to this currently is the fact that certain activities in relation to crypto-assets (specifically acting as a crypto-asset exchange provider or custodian wallet provider) are speci - fied in the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Pay - er) Regulations 2017 (MLRs). This has caused confusion as, for example, to the scope of the meaning of “making arrangements with a view to” crypto-asset transaction. It has also caused friction in terms of the fact that the FCA gener - ally has oversight over the conduct of business of firms within its remit, whereas the MLRs are focussed solely on reducing the risk of money laundering and terrorist financing, meaning a lack of clarity regarding the expectations in rela - tion to the FCA’s oversight. It is therefore help - ful that in the next few years the MLRs regime for crypto-assets is likely to be superseded by a more traditional approach to requiring authorisa - tion under FSMA. For other business, generally, the Financial Con - duct Authority’s expectations are as set out in the FCA’s Handbook of Rules and Guidance. That being said there are still some specific regimes, the most notable of which are the Pay- ment Services Regulations 2017 and the Elec - tronic Money Regulations 2011, which generally set out the rules for firms in the payment services industry. 2.3 Compensation Models Compensation models and associated disclo - sures are highly specific to the nature of the activity in question, however in broad terms there is a focus on avoiding any compensation which is likely to cause a conflict with the inter -
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