The UK’s Newly Assertive FCA pushes Google to Check Fintech Companies’ Drive Into Europe
Subject to mounting pressure from UK lawmakers and regulators, in June 2021 Google announced a new policy that could limit the ability of US fintech companies to advertise in the UK – a key market for financial services. Google now requires financial service advertisers from around the world to both obtain certification from the UK’s financial services regulator, the Financial Conduct Authority (“FCA”), and submit to Google’s own identity verification process.
Largely framed as a response to the uptick in fraud reported during the pandemic, Google announced that the initiative is designed to “help prevent scammers [from] exploiting our platforms.” Google’s response may have been hastened by repeated warnings from the FCA that it would pursue legal action against Google if it continued to publish unscreened financial ads.
Fintechs must now submit to FCA jurisdiction in order to advertise through Google in the UK, a critical European market for commerce. As a practical matter, many emerging fintech companies may reconsider their plans to enter the UK market.
This development forms part of the FCA’s newly assertive and creative approach to regulating all players in the financial services arena, including tech platforms. The FCA is not exclusively focused on industry leaders. It has also demonstrated its will to apply an equal standard to all firms. FCA CEO, Nikhil Rathi, described the new ethos of enforcement, noting that the UK is “open for business” but not to “firms who do not meet, or wish to meet regulatory expectations.” Implying the previous regulatory posture was not sufficient, he stated, “there is no scenario in which we will return to a light touch, don’t-ask-don’t-tell philosophy.” In that same vein, the regulators have publicized an intention to scrutinize applicants seeking authorization more rigorously by thoroughly reviewing their financials and business models.
Similarly, the Authority has indicated that it will investigate bourgeoning companies scrupulously, and will look closely at enterprises embodying risky or unconventional business models, such as crypto assets.
Expanding FCA Scope
The FCA has also taken the opportunity to creatively expand its remit, tasking itself with oversight over activities that have traditionally not fallen within its scope. This, however, is consistent with a trend of its broadening influence. Since its creation in 2013, the FCA’s scope has already expanded significantly, encompassing markets such as payday lending and claims management, and policy objectives such as diversity and inclusion, market competition, and consumer protection. Now, the FCA has even managed to reach companies outside of the UK, as evidenced by Google’s recent policy impacting entities that are not FCA-regulated.
The FCA’s new latitude, however, appears to have been directly catalyzed by the UK’s recent separation from the EU. No longer bound by the EU rules on financial advertisements, for instance, the FCA is empowered to formulate an independent anti-fraud strategy and pursue its own innovative methods for implementation. The pressure exerted on Google to vet advertisers is just the latest manifestation of the FCA’s approach.
Practical Implications for Companies Seeking to Advertise
Only four months into its implementation, neither the efficacy of Google’s policy to reduce fraud nor its implications on the platform’s operations are yet apparent. However, Google’s more active curatorial role does impose new practical burdens on financial services companies.
Specifically, these companies must submit to Google’s global advertiser identity verification which requires advertisers to provide a host of legal documents including personal legal identification, business incorporation documents or other identity information. More onerous, however, is the requirement that the advertiser demonstrates authorization with the FCA and provides its authorization number to Google, unless it qualifies for one of the limited exemptions, which include exempt non-financial services advertisers and government entities.
The FCA website indicates that application approvals may take six to twelve months after submission, a timeframe that is akin to a lifetime for emerging companies with limited funding looking to move fast and grow quickly. To top it off, applicants are required to pay both an initial fee to obtain authorization and an annual fee to sustain registration. The putative benefits of increased scrutiny, touted by the FCA, may ultimately generate chilling effects such as discouraging businesses from pursuing authorization. Should rigor tip into heavy handedness, the FCA also risks rejecting legitimate entities who can’t meet its standards.
Given the FCA’s public acknowledgement of its stance, we expect the Authority to implement additional wide-reaching policies with creative mechanisms for ensuring adherence.
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