The Global Financial Innovation Network (GFIN) was formally launched in January 2019 by an international network of 29 financial regulators and related organisations, including the Financial Conduct Authority (FCA), as a network committed to supporting financial innovation in the interests of consumers
1.1 Regulators around the world, including the FCA and the Australian Securities & Investments Commission, have introduced national sandbox programmes that allow firms that are producing innovative technologies in the financial services arena to trial their business in the real market without the need to obtain authorisation.
1.2 The GFIN launch follows the release of a consultation paper (the Consultation) by the FCA in collaboration with 11 overseas financial regulators on 7 August 2018 proposing its creation. The response to the Consultation was resoundingly positive from within the industry and regulators. GFIN was created as a group which serves broader society by harnessing new technology to provide an overall improved level of service, experience and integrity.
2. What is GFIN?
2.1 GFIN has three main functions:
2.1.1 serving as a network of regulators and related organisations that promotes information and knowledge sharing on emerging innovation trends, their own local experimentation, tests and initiatives and the provision of accessible contact information for firms
2.1.2 providing a forum for joint policy work, joint RegTech work, and regulatory trials where regulators will collaborate on key policy questions to inform the approach taken by regulators, and
2.1.3 providing firms with an environment in which to trial cross-border solutions to allow them to navigate multi-jurisdictional regulatory issues.
2.2 GFIN is not intended to be a regulatory organisation with responsibility for implementing rules. Instead, it is meant to build on and complement the work of the stakeholders through targeted engagement.
2.3 Following the consultation period, the terms of reference for governance and membership have been finalised to welcome other organisations interested in joining with transparency. The group has expanded from the founding 12 to include 29 organisations. Within the GFIN there are now different membership tiers of distinct benefits and commitment levels. The governance structure consists of:
2.3.1 Members: national or state financial regulators/supervisors
2.3.2 Observers: non-regulator GFIN participants
2.3.3 the Coordination Group: made up of members and sets the overall direction, strategy, and annual work programme of GFIN, and
2.3.4 the Chair (selected by the Coordination Group): the FCA.
3. Network of regulators
3.1 The GFIN network provides the ability for regulators to build on existing collaboration and allow information sharing to occur on a deeper, larger and quicker scale, thus allowing regulators to benefit from a wider range of regulatory perspectives and experiences. GFIN will also seek to help firms navigate international expansion or policy discussions with multiple regulators, building on the existing referral mechanisms in place under bi-lateral agreements. The network will provide firms with easily accessible information about relevant contacts and sign-post the opportunities for support and on-going initiatives within members of GFIN.
3.2 GFIN will seek to complement and, where appropriate, feed into the work of standard setting bodies. The Consultation mentioned, for example, exploring the idea of best practice when it comes to assessing the merits of financial innovation in the interests of consumers.
3.3 The network will be made up of an overarching group containing all GFIN members which will share relevant intelligence, highlight key pieces of domestic work or discuss innovation trends.
4. Joint policy work and regulatory trials
4.1 GFIN aims to leverage expertise from multiple regulatory authorities in different jurisdictions, thus providing the opportunity to crowd source solutions to common challenges and promote collaborative thought leadership on emerging issues. Since different regulatory approaches can act as a barrier to realising or scaling new ideas across markets, the Consultation stated that GFIN could act as a tool to identify these areas of divergence.
4.2 Types of policy work that members could collaborate on include publishing the findings from cross border trials and how they have informed evolving policy positions. GFIN also sees potential for members to collaborate on trials involving new approaches to RegTech and SupTech.
4.3 There will be an expectation that members share relevant policy work with the broader membership of the GFIN and where feasible, also provide a market update on any activity.
5. Cross border trials
5.1 The planned environment hopes to enable firms to test their innovative idea in multiple jurisdictions, gaining real-time insight into how their product or service operated in the market in multiple jurisdictions. These pilot tests will run for six months and are expected to start within Q2 2019.
5.2 As well as providing firms with an opportunity to test their new technologies, GFIN expect those who participate to provide feedback to the network on their experience. Therefore, the scheme is hoped to benefit the firms and also inform the future work of GFIN.
5.3 Firms that wish to participate in the pilot should submit applications to the relevant participating regulators. Applications must meet the necessary regulatory requirements applicable in the respective jurisdiction(s). More details on how to submit an application can be found here.
5.4 When reviewing the applications, each regulator will decide on whether the firm’s proposed test would meet its individual criteria, its areas of interest, and whether it is able to support the activity. Each regulator is also responsible for ensuring the appropriate safeguards for their jurisdiction are in place.
5.5 GFIN has mentioned the possibility of the cross-border trials informing regulatory authorities of areas where there is potential for regulatory convergence, but they have emphasised this as a long-term goal only.
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This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, February 2019