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FinTechs belonging to this category offer asset and portfolio management services via an internet platform or software programs and usually manage and dispose of the assets of their customers long or short term according to their specifications without actually holding the property or the possession of those assets. FinTechs, which provide information about and access to overnight or time deposit accounts at national and foreign banks and which execute the transactions to these accounts, also belong to this category. Some FinTechs however only act on request of the customer.
Aside from that some FinTechs offer software or internet solutions enabling users to manage and plan their personal finances on their own by providing graphics, overviews and compilations of their financial data and sometimes indicating financial risks or opportunities, but without actually managing the assets.
Introduction
Attitude of the country towards modern asset and portfolio management services
FinTech platforms have played an increased roll in reducing costs and customer fees. AI systems are being increasingly introduced to improve returns and reduce fees, both for tracker funds and actively managed funds.
Although FinTech asset management is still at an embryonic stage, it is expected that FinTech will increasing challenge traditional asset and wealth managers as the technology becomes increasingly sophisticated. So far disruption in this sector has not been as noticeable as in the banking and Payment Services sectors. This may change as platforms are able to demonstrate good investment performance and better overall returns by reducing costs.
The FCA has concerns about potential consumer harm in the investment market, and the lack of understanding of risks by consumers for “self-directed investors” (consumer investors making their own investment decisions, without the benefit of expert advice). Recent research for the FCA shows that over half of investors using FinTech platforms have been doing so for less than three years. The research identified that newer FinTech apps have reduced the barriers to entry, via easier to use and more accessible mobile apps, low or no fees, low starting deposits and marking campaigns messaging appeals to ‘fear of missing out’ or focusing on these reduced barriers. Newer FinTech apps have given access to younger “self-directed investors” who behave differently the traditional market of older, wealthier investors. The newer, younger self-directed investors are more likely than previous generations to hold high-risk, high-return investment types, and who are often being drawn to high-risk, high-return investment early (such as investment-based crowdfunding, cryptocurrency, CFDs). Their investment decisions are more likely to be influenced by social media content.
The FCA’s concerns about consumer harm are not limited to the FinTech sector. The FCA has recently (July 2022) introduced new “Consumer Duty” rules requiring all authorised firms to act to deliver good outcomes for retail customers. The new rules will also apply to businesses providing their services through FinTech platforms.
Legal affairs
Obligations and requirements to provide asset and portfolio management, or ancillary services described above
The main framework for asset management activities in the UK is FSMA. Asset manager and dealing platforms are likely to be carrying on the regulated activities of arranging deals in investments, advising on investments, safeguarding and administering investments and receiving or holding money for clients. FCA authorisation (with appropriate permissions) will be required to carry on any of those activities.
Fund managers are likely to be carrying on the regulated activities of managing a collective investment undertaking and managi