Editorial: UK’s regulator and Banks

Editorial: UK’s regulator and Banks

( Editorial originally published to subscribers on Sunday, November 6th 2016, in the Sunday Lending Times). Dear readers, are you aware that the UK’s regulator, the Finance Conduct Authority (FCA), has a fintech accelerator in-house ? I have been reading about the UK regulator’s actions and what the UK is doing in finance for a long […]

Editorial: UK’s regulator and Banks

( Editorial originally published to subscribers on Sunday, November 6th 2016, in the Sunday Lending Times).

Dear readers, are you aware that the UK’s regulator, the Finance Conduct Authority (FCA), has a fintech accelerator in-house ?

I have been reading about the UK regulator’s actions and what the UK is doing in finance for a long time.
UK is a small country of 64 million people, with 2.6 trillion as GDP. Despite this, it has been dominating the world of finance for centuries. Why is that ?

I can see why just by looking into the p2p lending space. The UK regulator actively encourages innovation and support challengers to established businesses.

The UK regulators have forced banks to refer business loan applicants to non-bank lenders if their applications are rejected. This measure has gone into effect this past week.

Of course, there are pros and cons to each measure. This measure, however, helps the new lenders, helps banks to look friendly to businesses, helps the businesses to get financing. The state of the economy is directly correlated with the spending of small businesses and their spending is correlated with the availability of credit. I strongly believe this measure will not only help the UK to stay ahead in the world of finance by feeding new innovating businesses but will also help them push their entire economy.

I this light I strongly believe that despite Brexit reducing the ease of access to a larger market, capital sources and talent pools, the British financial sector will continue to dominate for the foreseeable future.

US Banks

UK’s attitude towards finance and innovation can be seen as well with the Challenger banks. The UK is once again the only major financial center I am aware of that is pushing for new types of banks.

This past week Cross River Bank announced their raise of $28mil. The Wall Street Journal hailed the deal and noted how unusual it is for VCs to invest in US banks.

As I advise and help online lenders for a few years now I have reached out to US banks to ask them if they would like to partner with p2p and online lenders for a standard structure. There are about 10,000 banks in the US, roughly. How many of them have such programs ? To my knowledge about …7 (yes, seven). And from those 7, 1 is prohibitively expensive, 5 are “testing the waters” and only 1 fully embraced this new business: Cross River Bank.

I am therefore not surprised that Cross River Bank innovates , is very successful, and is interested in bringing this new innovative spirit to other segments of the market, like retail banking. I am excited to hear about their plans on Almond Bank. I am also not surprised how the FDIC, as far as I know, has pretty much moved permanently into their office with an ongoing audit and investigation.

In life, two different attitudes are facing each other :
UK’s FCA who is forcing banks to pass along rejected loan applications to new lenders. The FCA even created through their actions a new category of innovative banks called Challenger Banks.

And in the other corner the US regulators, who appear to want to support innovation but who in practice haven’t done much about it.

I can not believe that the US regulators are not aware of what the FCA is doing and their success. My personal belief is that, unfortunately, the polarization of US politics is affecting the regulators as well and is freezing any consensus that will permit innovation.

I strongly hope we can overcome this polarization and finally bring to the US a few measures that will allow entrepreneurs to start a new bank with perhaps $1mil in capital.

Or perhaps a way for a fintech company to operate in all 50 states for 1-year giving them time to get traction and be able to raise enough funds to deal with the 50 local rules and regulations.

Or why not start a fintech accelerator, in collaboration of the FDIC, SEC and the OCC in the same way Techstars has partnered with banks ?

If the FCA can put together an Innovation Hub, why can’t we ?

Thank you,
George Popescu,
Founder and Editor in Chief, Lending Times
New York – San Francisco