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22 February 2018

Transatlantic FinTech cooperation

Tech firms benefit from the effects both of clusters and networks.  Having spent years building up a cluster of FinTech firms, London is now focusing more on its network.

An important step in London building this network, and maintaining its crown as the European FinTech capital, was the recent signing by the United Kingdom’s Financial Conduct Authority (FCA) and United States’ Commodity Futures Trading Commission (CFTC) of a Co-operation Arrangement on Financial Technology Innovation (the Arrangement).

The purpose of the Arrangement is to provide a framework for cooperation, information sharing, and referrals between the two regulators.  The Arrangement will have a particular focus on cooperation between the two regulator’s innovation initiatives: the FCA’s Project Innovate and the CFTC’s LabCFTC (Innovation Functions).  

The Arrangement describes the two regulators’ intention “to meet periodically…to update each other on FinTech and RegTech developments and trends and to discuss issues of common interest”.  As part of the Arrangement, the FCA and the CFTC say that they will “invite each other to observe in proofs of concept, trials, or innovation competitions supported by sandboxes, accelerators, launchpads, or similar endeavors related to FinTech and RegTech organized by their Innovation Functions.”

Crucially, the Arrangement also provides a framework for the two regulators to refer FinTech businesses to each other.  Under the Arrangement a UK firm participating in Project Innovate could be referred to LabCFTC; while in LabCFTC firms could in turn be referred to Project Innovate. 

The Arrangement’s importance is three-fold.  Firstly it is a vote of confidence in the FCA (and, indirectly, in London).  This is the first time that the CFTC has entered into a FinTech innovation arrangement with a non-US regulator.  Moreover, in signing the Arrangement, the CFTC’s Chairman described the FCA’s Project Innovate as “the gold standard for thoughtful regulatory engagement with emerging technological innovation”.

Secondly it should promote regulatory alignment between the US and UK in the financial services sector.  The FCA and the CFTC are both trying to balance the competing objectives of protecting consumers and promoting innovation.  If the two regulators strike this balance in different ways they will allow scope for regulatory arbitrage and they will make it difficult for firms and consumers to provide and use financial services on a cross-border basis.  With the Arrangement in place, however, the FCA and the CFTC can use their combined experience and expertise not only to strike a sensible balance between consumer protection and innovation promotion but also to do so in a way that encourages competition and the sharing of best practice.

Thirdly, in allowing firms to benefit both from Project Innovate and from LabCFTC, the Arrangement will allow UK-based FinTech businesses to gain real-time understanding of the latest Tech trends in the US as well as to get a headstart regarding CFTC authorisation for operations that they may wish to establish across the Atlantic. 

London is already home to one of the world’s great FinTech clusters; the Arrangement puts that cluster into a network with the world’s leading Tech jurisdiction.  Silicon Valley and Silicon Roundabout both have great FinTech firms; the benefits of enhanced cooperation between them could be enormous.

Charles Russell Speechlys’ FinTech team advises on a range of FinTech matters, including FCA authorisations.  Please contact William Garner or Richard Ellis if you would like more information.

This article was written by Richard Ellis. For more information please contact Richard on +44 (0)20 7438 2225 or at