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Scott Underwood, Head of Solutions Consulting at Niu Solutions

Over the last few months, the Financial Conduct Authority (FCA) has received a fair amount of criticism from firms suggesting that its regulatory requirements can inhibit them from taking a more innovative approach when communicating with and advising consumers. In many cases, firms have found that the current regulations are unclear, which means that organisations are often unsure of how to interpret them.

As a result, these rules can inhibit firms from moving towards digital transformation and adopting more innovative solutions, which creates a major challenge for the industry.  Based on this feedback, the FCA has agreed to re-evaluate its regulatory definitions on the use of digital and mobile solutions. This is certainly a step in the right direction for financial services companies, since more and more firms are looking to adopt digital and mobile platforms in order to gain a competitive edge.

Challenging digital identity

The concerns surrounding the current regulatory definitions focuses on four key areas – communication, data storage, due diligence and financial advice – which could potentially prevent businesses from pursuing digital and mobile solutions.

One of the biggest challenges for financial institutions across all of these areas is the need to rely on unwieldy legacy systems. The problem is that most banks are unable to replace these systems with a more up-to-date solution due to the sheer volume of critical data that they hold.

Fortunately, there is now a way to address problem. By combining the computing power of their legacy systems with the next generation of cloud and mobile technology, traditional banks are now able to compete with their digitally-focused counterparts. By bridging the gap between legacy systems and mobile applications in this way, established players are now able to develop innovative mobile solutions that help to enhance consumer engagement, largely due to developments in cloud computing.

Cloud platforms represent a key technological development that has revolutionised the way in which businesses and customers share data. If implemented correctly, cloud solutions can transform a bank’s operations, making it more agile and capable of developing services that are tailored to customers’ individual needs.

Compliance in the cloud

Despite these benefits, many firms have lagged behind when it comes to cloud, fearing that security issues could result in regulatory fines and other penalties. However, given the FCA’s decision to review its regulatory definitions, the industry’s attitude towards cloud-based platforms could soon change.

Even so, it will still be very difficult for off-the-shelf IT solutions to meet the FCA’s full requirements, as one size simply does not fit all. This is why it is important that firms adopt a tailored, hybrid solution that has been created specifically with their business goals and FCA guidelines in mind, particularly when it comes to cloud-based solutions.

It’s essential that businesses recognise and understand that regulations are put in place to ultimately protect consumers and data. For this reason, regulation in compliance is changing all the time, so unless a business is willing to evolve and overhaul its systems and processes, it will simply be spending money on ‘keeping up’, rather than gaining any new benefits.

The FCA argues that financial institutions should take advantage of the digital due diligence tools that are available for this purpose, and also work with the Government Digital Service to understand how a secure digital identity could be used in financial services. If firms are willing to focus their efforts in this way, it’s possible that compliance in the cloud will no longer be seen as a barrier to adoption.

The role of technology and innovation in compliance

Despite these recent developments, some firms are still questioning the FCA’s general attitude toward regulating technology. In particular, many firms feel apprehensive over the lack of specific technology-focused rules, which makes it hard to interpret the FCA’s policies.

Although the FCA has welcomed this feedback, it still stands by its principles-based approach and the broad rules contained in its handbook, arguing that rather than providing technology-specific guidance, its current procedures will provide greater flexibility for dealing with the emergence of new technology, thus enabling firms to explore further use of digital and mobile solutions more easily. With this approach, the FCA hopes to ensure that its regulations are more durable, and thus eliminate the risk of regulations becoming outdated as innovation develops.

Once the current regulations are reviewed, and new rules are potentially enforced, businesses will still face the challenge of managing additional compliance measures, however. As such, firms should seek advice from experts who can provide risk assessments that support the safe, strategic adoption of a more digital approach.