T H E L E A D I N G V O I C E I N F I N A N C E I N N O VAT I O N
FP&A INNOVATION OCT 2016 | #12
The IoT And The Finance Function / 8
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Israel’s FinTech Scene Leads The Way
How Often Should You be Forecasting?
The Israeli startup scene is renowned for producing some of the world’s most innovative companies, and FinTech in particular is an area where it is having success / 6
Forecasting is a complex art. Done right, it can help propel growth. Done wrong, it can have a disastrous impact. We look at the different kinds of forecasting, and which your organization should employ / 10
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ISSUE 12
EDITOR’S LETTER Welcome to the 12th Edition of the FP&A Innovation Magazine
As we come to the end of what has been a tumultuous year by anyone’s standards, the primary concern for CFOs this quarter is the US election. In Deloitte’s Q3 CFO Signals™ survey, 87% of respondents said they believe the their organization’s future performance depends at least somewhat on the outcome of the presidential election, with many citing increased uncertainty around international trade, government spending, and tax policies. This concern has led many to delay investment. The latest CFO Global Business Outlook survey from Duke University found that, regardless of who wins, at least 33% of CFOs will hold back investment until they see how either candidate will govern, while 26% of all US firms said they are already delaying investment because of the election. However, compared to last quarter, CFOs appear to be more optimistic. 46% of CFOs describe the North
American economy as good or very good, up from last quarter’s 40%. This sunny optimism is translating into significant investment into technology such as cloud platforms and analytics. Later in this issue, we look at how the finance function can embrace the Internet of Things to improve its operations. Also in the edition, we look at where the CFO sees their career going, with many looking ahead to the CEO’s corner office. Incidentally, it appears that CFOs and CEOs are at odds when it comes to who they want to win the presidential election. In Duke’s survey, 40% of CFOs said they will hold off on investment if Hillary Clinton is elected, but only about 33% said they will do same if Donald Trump is elected. However, no CEO at any Fortune 100 company has come forward in support of Trump.
One region used to a fluid and volatile geopolitical situation is the Middle East. Later in this issue, we talk to Aakif H. Khan, CFO of Gulf Union Foods, about the challenges he has faced and how he has overcome them. Hopefully, things calm down in 2017. There have been many lessons this year around expecting the unexpected, which should leave finance leaders in a better position next year when it comes to their planning and risk management models. As always, if you are interested in contributing or have any feedback on the magazine, please contact me at jovenden@theiegroup.com.
James Ovenden managing editor
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contents 6 | ISRAEL’S FINTECH SCENE LEADS THE WAY
16 | CFOS HAVE THEIR EYE ON THE CORNER OFFICE, BUT IT’S NOT A CLEAR PATH
The Israeli startup scene is renowned for producing some of the world’s most innovative companies, and FinTech in particular is an area where it is having success
For many working in the finance function, the CFO role is the guiding ambition. However, once there, it appears that many want to go one step further - and CEOs should watch their backs
8 | THE IOT AND THE FINANCE FUNCTION
18 | FINTECH REGULATION REQUIRES A LIGHT TOUCH
The last decade has seen finance leaders embrace a raft of new technologies. With IoT set to be the next big change in the business world, we look at the impact it’s going to have on FP&A
The speed at which FinTech has evolved in recent years has been exceptional. The speed is such that regulators have struggled to keep up. We look at what they can do to keep things in check, without stifling growth
10 | HOW OFTEN SHOULD YOU BE FORECASTING?
Forecasting is a complex art. Done right, it can help propel growth. Done wrong, it can have a disastrous impact. We look at the different kinds of forecasting, and which your organization should employ
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Do you want to contribute to our next issue? Contact: jovenden@theiegroup.com for details
12 | INTERVIEW WITH AAKIF H. KHAN, CFO OF GULF UNION FOODS
We talk to Aakif about the role of the CFO in the Middle East, and the various challenges he faces operating in a region with an exceptionally turbulent geo-political climate
managing editor james ovenden weyer
| assistant editor charlie sammonds | creative director charlotte
| contributors elliott jay, maisy hockey, lauren ravary, kirsty donovan
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Israel’s FinTech Scene Leads The Way
James Ovenden | Managing Editor THE FINANCE TECHNOLOGY (FinTech) industry has become one of the fastest growing high-tech sectors in recent years. Globally, FinTech investments increased from $1.8 billion in 2010 to $19 billion in 2015. If you’re looking to put your money in a future Unicorn, FinTech is the place to start. And if you’re looking for somewhere to do it, Israel may well be your first destination. Israel’s startup scene in much lauded. Despite having a population of just 8.5 million people, Israel has approximately 4,800 tech companies. In the past year alone, Israeli startups have generated over $4.5 billion in funding - more than 10% of which was attributed to the growing FinTech industry. There are currently more than 500 FinTech startups based in the country, disrupting the banking and financial services industry with new and increasingly ingenious innovations. /6
These startups include Fundbox, which optimizes cash flow for small businesses by providing credit-ondemand for their outstanding invoices. Fundbox has raised $90 million in two rounds. International money transfer company Payoneer raised a similar amount. Another FinTech company causing excitement is GetStocks, an online social brokerage aimed at removing several barriers in stock trading. GetStocks combines social media with share trading to make it easier for people with little experience of the stock market to buy and sell shares. There are a number of reasons for Israel’s success with FinTech. There are thousands of Israelis working in the global financial services industry, primarily on Wall Street and in London, and take the knowledge they acquire back to Israel. Israel also has a great deal of expertise in technologies borne from being a tech hub, particularly their incubators. Citi, for one, offers a Tel Aviv-based financial technology accelerator program that provides a four month mentoring course with the intention of fostering technology in the financial sector. A total of 53 startups have graduated from the accelerator, with $185 million in investments raised. One of their success stories is Sling, whose platform allows the underserved micro-merchants to accept electronic payments from any consumers using smartphones in their vicinity.
in which creativity and intelligence are highly valued. It has become a popular pool for companies seeking top talent in engineering, communications and other areas of technology. There are also a number of factors inherent to Israel that are helping to drive forward FinTech innovation. Israel’s small size, for one, means that any startup must immediately start thinking about global expansion out of pure necessity. Even the high number of immigrants could be considered a contributing factor. Immigrants are, by definition, risk-takers, and 90% of Jewish Israelis today are either immigrants or descendants of immigrants in the first or second generation. Immigrants are used to starting from scratch and facing adversity, and this kind of mentality translates well into building innovative startups. FinTech is booming and Israel is set to be at the heart of it. While it is obviously going to be difficult for other countries to emulate things like its small size and high immigrant population, there are a number of other things Israel is doing that they could seek to copy. Its incubators, for one, are something that could be actively encouraged, and countries like the UK and the US with major financial centers could better utilize the expertise at their disposal to boost FinTech.
Perhaps the most important incubator is, however, the Israel Defence Force and ‘Unit 8200’. The Israel Defence Force has produced a number of entrepreneurs. Dan Senor and Saul Singer’s book, Start-up Nation: The Story of Israel’s Economic Miracle, credit it as being one of the major factor for Israel’s economic growth, arguing that as it is mandatory for most young Israelis to serve in the IDF, this gives potential entrepreneurs the chance to develop a wide array of skills and contacts. It also provides experience exerting responsibility in a relatively un-hierarchical environment,
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The IoT And The Finance Function GEORGE HILL, EDITOR IN CHIEF
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... just a Wallace and Gromit-type contraption for the digital age
Elliot Jay | FP&A Expert The Internet of Things (IoT) has been threatening to explode for a number of years now. Ericsson has predicted that there will be 28 billion connected devices by 2021, while other firms have gone for roughly the same number, with Gartner’s among the lowest at 20.8 billion by 2020. Although these estimates have fallen dramatically in the past few years many have as much as halved since 2011 - it is clear that IoT is not just hype. It is a technology that will have a profound impact on the world over the next decade. Despite this, there is still insufficient understanding of what exactly IoT means for businesses. In a 2016 Penton survey of 996 companies, just 9% of respondents stated that they were extremely familiar with the technology, while 19% reported that they had never even heard of IoT and 56% agreed with the statement that there was a lot of confusion surrounding IoT. /8
For many, their perception of IoT is still that of a gimmicky technology useful only for connecting toasters to coffee machines and ovens to headphones, essentially just a Wallace and Gromit-type contraption for the digital age. However, the applications for business are many. In particular, it has the potential to transform many aspects of accounting and auditing, and help finance leaders confront the challenges they face in the modern business environment. The IoT is a fairly simple proposition to understand. It’s the concept that all of our devices and things are
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connected. With connected devices, an organization will be able to collect more data than ever before, which can then be mined for trends offering insight into aspects of the business like customer purchasing habits and inventory. The central challenge facing CFOs today is measuring and monitoring business performance in a timely fashion to ensure their organization can respond to events in an agile fashion and exploit every opportunity possible without too great an exposure to risk. The IoT will make it significantly easier for CFOs to do this, with data flowing into billing, enterprise resource planning, and accounting systems in real time. This will change the way that forecasting and audits are carried out, providing real-time visibility around transactions and making risks easier to pinpoint ultimately, leading to better decisions. There are, however, a number of things that CFOs and other finance leaders must consider before these benefits are realized. The first thing the CFO will need to be cautious of is security issues around the IoT. The financial data that is being collected by the myriad devices at their organization’s disposal is highly important, yet there are widespread concerns around the security of data held within the IoT, with many designers forsaking it in their hunger to get products to market early. The CFO will need to work closely with the CIO to ensure all devices are capable of withstanding attacks that could detrimentally impact their organization’s dealings, and maintain constant vigilance.
‘Another issue is the ramifications around taxation, which have the potential to blindside companies that are unprepared,’ says Paul Sallomi, vice chairman and global Technology, media and telecommunications industry leader, Deloitte LLP. Companies regularly invent new ways to add value to traditional products, including enhancing connectivity. This type of business model transformation often makes product companies look more like service providers. As these types of services become an increasingly important valueadd element to the equipment, manufacturers could find themselves in a different type of business
Finance functions have already gained significant experience in data collection and predictive analytics, so should be prepared to deal with another influx, but they will need to have the understanding and strategies in place to exploit the technology, or risk falling behind those who have
Finance leaders will need to become more tech-savvy to make the most of IoT, and work closely with CIOs and other tech leaders in their company. Fortunately, IoT is not going to come in overnight, with implementation likely to come slowly and in stages. Finance functions have already gained significant experience in data collection and predictive analytics, so should be prepared to deal with another influx, but they will need to have the understanding and strategies in place to exploit the technology, or risk falling behind those who have.
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How Often Should You Be Forecasting?
Kirsty Donovan | FP&A Thought Leader ONE OF THE MOST important questions finance leaders have to ask themselves is how often should they be forecasting? And how detailed should the forecasts be? There are several ways to approach forecasting. Rolling forecasts, a quarterly deep dive forecast, or a quarterly high level forecast with one deep dive forecast during the year are probably the most popular. It really depends on the nature of your organization as to which works best, but each has their pros and cons, and it is important to understand that, while something like a rolling forecast may sound like the obvious option, it is not necessarily so. A rolling forecast is something that has only become popular in recent years, enabled by advances in analytics and reporting technology. An AFP study recently revealed that 44% of finance professionals have turned to continuous forms of planning, as old
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methods become increasingly less viable. The advantages are clear, with frequent assessment allowing decision makers to incorporate changes in business conditions as they occur, increasing agility by anticipating shortterm outcomes and therefore having the ability to influence them. With a rolling forecast, executives can make decisions that reflect any changes and trends in their industry or business, manage cash flows to anticipate risks, and set shareholder expectations according to the most recent possible projections. Asoka Karandawala, an independent finance director at AKCA Consulting in London, argues that constantly having figures to show the C-suite is the main benefit, noting: ‘For one thing, you
always have a set of figures that you can show your board [and] your senior people. And if you ever want to get some funding from outside to expand your business or buy some equipment, the bank will usually say, 'Give us a forecast for your next 12 months and your cash flow. With a rolling forecast, you have a foundation to pull these figures from.’
A rolling forecast is something that has only become popular in recent years, enabled by advances in analytics and reporting technology
The obvious problem with implementing rolling forecast is the time and resources they consume. In a rolling forecast, you have to be constantly doing the figures, occupying a significant portion of your finance team's time. Budgets and forecasts also can’t run a business, they are just tools to support decision-making. Managers are liable to spend all of their time preparing forecasts and not enough completing other necessary tasks, foregoing the strategic, creative role within their organization that they likely want to be filling. Nothing about your business remains constant. Information that is fluctuating - such as the price of oil, which could well double between quarterly forecasts - can have a tremendous impact on the majority of businesses. Logic would, therefore, suggest that your forecast shouldn’t stand still either. Basing all of your decisions on an annual budget means you're operating on static assumptions that quickly become irrelevant. According to a study conducted by Adaptive Insights and CMC partner, 64% of annual forecast targets are obsolete after 4 to 6 months. In a recent survey by Aberdeen Group, 71% of top-performing organizations who responded said that they mitigated against risks related to volatile business conditions by continuously updating forecasts to better reflect current business conditions. Ultimately, though, it depends on the organization. A small business is unlikely to have the resources to carry out rolling forecasts. For those, it is more important to simply manage cash flow appropriately to deal with any shocks, and not spend time and resources that could be better spent elsewhere.
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Interview with
Aakif Hasnat
CFO of Gulf Union Foods
Aakif H.Khan is the CFO of the Gulf Union Foods Company. He has over 10 years experience as a finance professional, including experience with PWC Pakistan (6 years) and Olayan Group (one of the largest groups in Middle East). We sat down with him ahead of his presentation at CFO Rising West, taking place in San Francisco this October 19-20 2016. How did you get started in finance? I started as a public accountant with PWC where I was exposed to the largest and the best companies in my country. Luckily, soon after I joined PWC, it implemented the new riskbased audit approach in my country, which required a better understanding of the client’s business environment and overall risks. This provided me with the opportunity to understand the overall business environment and risks of some of largest companies in that part of the world. After my stint with the audit department, I worked as a consultant with PWC for a couple of years implementing ERP, where I got a chance to interact with some of the most dynamic CEOs and finance personnel. I call them dynamic because they were the first ones to embrace ERP technology in the country; it was during this period that I began to appreciate that how these dynamic business leaders are spinning innovation to their advantage to get on to the top and how such change is being managed. The role that helped me shape my career towards a CFO was that of an FP&A role in the corporate office of one of the largest conglomerates in KSA. This role helped me shape my career and finally led to CFO role. I was exposed to variegated businesses
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in the Middle East, their business models, challenges, strategies, etc. I also came across both successful CFOs and not so successful CFOs and was able to identify the real role of a CFO in different companies. It was during this role that I realized that how critical is the role of a CFO in making or breaking a company. In recognition of my potential for future and performance of almost six years with this department, I was appointed as a CFO in one of the subsidiaries of this group, which is my ongoing role. What do you see as the finance function’s role in innovation? What do you think are the specific challenges around innovation at Gulf Union Food? Finance has a strategic role within organizations, i.e., to collaborate with other departments in the innovation related to various different areas, including; product innovation, processes innovation, business model innovation, IT-related innovation, etc. and these are the areas where the finance department in our company is collaborating with other departments. The challenges are more or less similar to any other organization, but finance department is playing a pivotal role to overcome these challenges.
What specific challenges do you face as a finance leader in the Middle East? Politico - Economic challenges The geopolitical situation in the Middle East is fluid and volatile, which makes it difficult for the finance leaders to plan the future, and in some cases to carry out business. The bogeyman is the ISIS and nobody knows which direction it will take, whilst the elephant in the room is the impact of oil price changes. Where the former has impacted the confidence of business leaders, the latter has affected the overall economic environment, which in turn is having an impact on the business performance. Another impact of the oil prices is that governments have increased the utility and fuel costs, and since some governments borrowed internally, the borrowing costs have started going up as well in some of these countries. The GCC (Saudi Arabia, UAE, Qatar, Oman) governments are further planning to implement VAT to increase revenue. All of the above changes are influencing the finance leaders in the following ways; • Planning and forecasting has become more difficult, though most of the finance leaders have resorted to defensive strategies • Slippages vs. the previously agreed plans / forecasts have started resulting in higher pressure as well as interference from investors especially in private companies • Revenue Collections are being impacted because some companies had to close altogether whilst others are laying off workforce. • Managing liquidity and arranging funds has become a bigger challenge People related • Mostly finance leaders face the issue of availability of good resources. • Maintaining a balanced ethnic diversity in the team, which is very important in Middle East.
• Meeting the targets and managing the employee productivity. Since a large part of the workforce is expats in the private sector, who are not in queue for passports or immigration, it’s not uncommon for employees dealing with cash collection to abscond to their home countries with cash. Compliance Lately there have been some major corporate failures and investor setbacks due to non-compliance, which have made governments more active and stringent, demanding further compliance. Further, in KSA, IFRS are being introduced in next couple of years, which will be one of the other challenges of finance leaders. How has the role of the finance function changed over the last decade? Do you think the CFO role has changed to become more of a generalist? What do you see as having been the main drivers behind this? The way I see it, the role of CFO has metamorphosed a few times. The role of CFO traditionally was that of bookkeeper, whose main focus was ensuring compliance (with accounting standards, GAAP or IFRS, local company laws, tax etc). This role was more of a back office. The CFO was only expected to get the external audit done successfully and to ensure that no compliance issues arise, so much so that in my part of the world even annual bonus was linked to successful completion of annual external audit. However, over the course of time, this role has evolved into what we might call a T model, where the vertical bar of the T represents the depth of knowledge in finance and related matters whilst the horizontal bar represents the breadth of general knowledge about different areas. However, then the role of CFO moved beyond that T-shaped model. Imagine
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if we add another vertical bar to this T, which represents good understanding of company’s overall strategy, another representing understanding of purchasing, and so on which represent the understanding of the following: • supply chain, • customers, • competitors and business environment, • IT related systems / ERP • changes in the geopolitical situation, All these legs joined to the vertical bar would give the image of a ‘centipede’, the main body of centipede is now the ‘business understanding’. All these legs help the body to move forward and the strength of each leg will determine how fast this centipede can move in the ever-changing business environment. The important word to notice is ‘understanding’ of business vs. ‘Knowledge’. I kept wondering that today almost every information is available on google, so what is the difference between a fresh graduate and an experienced person, because a fresh graduate can google things and is at par in terms of knowledge…the answer lies in the word ‘understanding’ which needs experience and reflection and feeding in from all the aforementioned legs. This to me is a major difference, between today’s CFO and a CFO from few decades back…previously a very good knowledge of Debits and credits was a must…but today a very good understanding of business and a good analytical mind is a must. This can be substantiated by the fact that there are several examples of successful CFOs who are not from hardcore accounting backgrounds but they understand the business really well.
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Another evolution in this role is that previously a typical CFO may have spent a lot of time on capturing and discussing historical results, but today’s successful CFO needs to spend most of his time analyzing and discussing the future and preparing for that timely, while using past as a reference point, so the focus has shifted from recording past to timely and wisely preparing for future. Do you think executives’ perceptions of finance leaders as accountants still prevent them taking up a role as a strategic partner in their organizations? If so, how can they overcome this? It varies from company to company… sometimes in my part of the world in traditional family based businesses or private companies this perception still prevails …but even the successful family based business have changed their way of thinking and consider CFO as a strategic business partner. In cases where it exists, the CFO himself/herself can play an important role by stepping up his efforts to demonstrate his/her ability to become a strategic partner. A good grasp of business dynamics and its environment, reflection, and fact finding will lead to a point where one can stand on one’s own two feet and give a balanced opinion on how to move forward.
What do you think presents the greatest challenges for finance leaders over the next year? Do you have strategies in place to overcome these? As far as Middle East is concerned the major challenges are: • Foreign currency fluctuations and impact on international investments as well as business • Forecasting and planning with fast changing geopolitical situation • Compliance with Stringent govt. policies • Liquidity management and arranging the funds • VAT and taxes in middle east • Implementation of IFRS in KSA, It might be a good idea to resort to a defensive strategy, with a focus on
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Maisy Hockey | Head of Finance
CFOs Have Their Eye On The Corner Office, But It’s Not A Clear Path ACCORDING TO A NEW SURVEY from recruiters Robert Half, 86% of CFOs have designs on becoming the CEO. But are their dreams achievable? And are they on the right path? The survey certainly showed that CFOs see themselves as equipped with the right skill set to become CEO, with 44% of finance leaders citing their knowledge of investor stakeholder management as making them the best candidate, 40% their economic and business awareness, and 32% their ability to deliver finance and data-driven business decisions. There is also a long history of CFOs successfully making the transition. Indra Nooyi, for example, worked her way to up
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to CFO at PepsiCo and eventually became CEO in 2006 - the fifth CEO in the drinks giant’s history. Peter Voser also came to Shell as CFO before moving straight up to CEO. At present, 55% of FTSE100 chief executives have a finance background, suggesting that the CFOs are on the right trajectory. However, when you look at those who went directly from CFO to CEO, the chances appear to diminish significantly. A Korn Ferry analysis
of sitting CEOs in the global Forbes 2000 in 2015 found that just 13% had gone from CFO to CEO, and this only went up to a total of 18% when other leadership positions in the finance function were taken into account.
they might not pay off, empowering other employees to do likewise. A McKinsey survey found that CFOs often lack these kinds of leadership skills, communicate poorly, and they are particularly weak when it comes to motivating and inspiring teams.
There are a number of reasons for this, but key among them appears to be an absence - or perceived absence - of operations experience. Rather than moving directly to CEO from CFO, many are gaining such experience before making the move. Three-quarters of Fortune 100 CEOs come from operations, and David Axson, managing director of the CFO & enterprise value practice at Accenture Strategy, notes that: ‘What seems to be happening is that a lot of CFOs are now being given operational responsibilities. So they are moving out of the CFO suite and heading a line of business that is complementing their CFO skill set with a business leadership skill set. That move allows them to become a candidate for CEO succession,’ continuing that, CFOs who make the transition to CEO have managed to develop the strong ‘operational strength of running a business to complement their already competent financial skill set.’
This difference in the qualities needed in CFOs and CEOs changes, however, during periods of economic trouble. A study by the BearingPoint Institute found that CFOs were more likely to move to CEO during a downturn - 26% higher than an average year. This is likely because they are seen as relatively risk averse, and as more knowledgeable of regulations, cash management, and their relationship with stakeholders - all qualities most valuable during a period of instability.
The qualities expected of a CFO intersect at many key points with those of the CEO, but they also differ in small but significant ways. The CFO must be an effective organizational leader and a key member of senior management, act as the integrator and navigator for the organization, as well as be an effective leader of the finance and accounting function. CEOs, on the other hand, need to inspire, influence, and motivate others. They need the courage to take risks, and to persevere when it appears
CFOs may think that the next logical move in their career is up to CEO, but it may not be the case. Leadership at different levels is vastly different, and demands and responsibilities tend to grow exponentially rather than vertically. The CFO’s remit has grown significantly in the past few years, taking a more strategic role and a greater oversight of the whole organization, but this is greatly intensified as a CEO. It may actually be that the natural talents and experience of the CFO are better suited to a move up to a position like Chairman. Mark Freebairn, a partner at executive search firm Odgers Berndtson, said: ‘With boards under pressure to be risk-averse finance directors are a better fit to take on the role of chairman.’ CFOs are now expected to act as partner to the CEO as a counter-balance. It therefore makes more sense if they perform a similar function as a counter-balance in the Chairman role. With 86% intending to become CEOs however, it remains to be seen whether many would take such advice.
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FINTECH REGULATION REQUIRES A LIGHT TOUCH Lauren Ravary, FP&A Commentator THE SPEED AT which FinTech has grown will likely have astounded even its most enthusiastic advocates. VC-backed FinTech investment increased 106% to $13.8 billion in 2015, as a number of startups kicked on to achieve unicorn status. This news is not positive for everyone, however. The speed at which growth has occurred has presented a tremendous challenge for regulators, as they seek to encourage the sector while at the same time ensuring companies are not allowed to ride roughshod over the rules that prevent banks from exploiting their customers and destroying the economy. Following the financial crisis, regulators were subject to a large portion of the blame and have since been relatively proactive in
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taking banks to task, introducing a raft of new regulations that have made compliance one of the most pressing challenges of the decade for the financial services industry. FinTech startups present an entirely different challenge to the big banks, though. FinTech startups are, by their nature, small and agile. Increasing levels of regulation and introducing more complex regulations can have a significantly detrimental affect on their operations, with many lacking the resources to spend on legal or
compliance fees, and the training required in-house to understand the impact on their processes and technology. In order to best facilitate the regulation of FinTech, a number of countries have introduced so-called ‘regulatory sandboxes’. In Hong Kong, for example, the Monetary Authority, and Securities and Futures Commission CEO, Norman Chan, has recently announced plans for a ‘FinTech innovation hub’ where new financial products and services can be tested and trialled separately from internal banking and finance systems. This also provides a space where guidance is offered to startups around compliance and possible exemptions, which would allow them to operate without regulatory authorizations.
Despite popular opinion, it is not true to say that FinTech wants a clear field to operate in with no regulations at all. Over-regulation can stifle growth, but the FinTech industry needs regulation to maintain the consumer trust it so desperately craves, especially when trust in banks is so low. However, there needs to be a light touch applied that ensures FinTech companies are still able to innovate, and the regulatory framework clearly defined so that it can be easily understood.
The UK has a similar program in place. The UK regulator has actively set itself up as the gold standard, with many of its innovations being imitated by other regulators around the world. The Financial Conduct Authority (FCA) has understood that regulatory requirements could inhibit innovation, and issued a Barriers to Innovation consultation to lead innovations of its own that offer support and collaboration to encourage learning. Regulation of FinTech in the US, however, is different story, with a fragmented approach that causes significant confusion about how a firm will be subjected to regulatory oversight, and 50 states and multiple federal regulators adding further complication. All of this creates uncertainty and cost - both of which are going to cause them to fall behind their rivals overseas operating under clearer regulatory regimes.
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