UK fintech faces tougher oversight as rules tighten

UK fintech firms are preparing for tighter oversight as regulators extend their reach from cloud infrastructure and buy now, pay later services into the broader digital finance ecosystem. Industry leaders say the changes are reshaping how providers design products and manage risk.

The latest steps include the UK government's framework for critical third-party cloud providers and the Financial Conduct Authority's move to bring deferred payment credit and buy now, pay later products into its remit. Financial services firms and technology providers are assessing the impact on infrastructure choices, consumer protections and investor expectations.

Chris O'Brien, Chief Technology Officer at Advania, said regulators had taken an important step by recognising the systemic role a small number of large cloud providers play in financial services.

"The announcement is a sensible recognition that cloud platforms have become part of the UK's critical financial infrastructure. Microsoft and other major cloud providers underpin many of the services that banks, insurers and regulated firms rely on every day, so clearer oversight is a step towards locking in sector-wide confidence and resilience.

AI companies might not be in scope today, but their platforms are becoming embedded at pace in decision-making, risk management, customer service and operational workflows.

As that dependency grows, proportionate oversight of critical AI services through a financial services lens could be helpful without stifling innovation. Recent events show organisations need more assurance about access to AI, and financial institutions would be high on that list. A sensible extension of the legislation should give financial institutions the confidence to adopt AI responsibly rather than hold them back."

His remarks reflect a broader view among regulators that cloud and, increasingly, artificial intelligence form part of the financial system's core infrastructure. Supervisors have focused first on operational resilience and concentration risk in public cloud. Attention is now turning to how similar concerns could emerge around a small number of AI providers whose models underpin fraud detection, credit scoring and trading tools.

While infrastructure oversight tightens, consumer-focused rules are also changing the landscape for instalment payments. The FCA's regulation of deferred payment credit and buy now, pay later, which came into effect this month, is prompting product redesigns and new business models in retail finance.

Alex Forsyth-Thompson, Chief Executive Officer and Founder at Float, said the new regime sets a higher bar for providers and is reshaping how firms position instalment products.

"This is a good moment for the UK instalment sector and, above all, for shoppers. Regulation like this raises the bar for everyone building in the space. Clarity around standards and guardrails should deliver better outcomes for shoppers, including clearer disclosure, real affordability checks, limits on escalating fee harm and recourse if something goes wrong.

We see that as positive for anyone providing or using instalment payments in the UK. We have entered that environment with a model that works differently. Float's technology enables merchants to offer instalment plans, with no added fees or interest, within the limits and protections of a credit facility that a bank has already assessed and approved, rather than issuing additional credit exposure.

By operating within the existing regulated credit card framework, Float's structural product design delivers many of these better outcomes by default. We are excited to be building in the UK just as this market is being asked to raise its standards, and a model built around using credit people already have, rather than creating more of it, is a good fit for where things are heading."

Float positions itself separately from buy now, pay later lenders. It works with merchants that want to offer interest- and fee-free instalment plans within a shopper's existing Visa or Mastercard credit facility, rather than extending new credit at checkout.

Alongside regulatory change, investors are placing greater scrutiny on how fintechs manage and use data. Funding decisions increasingly depend on granular performance metrics and the strength of analytics infrastructure.

Natalie Cramp, Partner at JMAN Group, said fintech founders often underestimate how quickly investor expectations around data are rising.

"Over the past decade, data has transformed the investment sector. Historically, investors wanted visibility into key financial trends. Now they expect far more detailed transactional insight and are increasingly focused on understanding the 'why' as well as the 'what'. The result is a shift towards data-driven strategy, with intuition giving way to a much greater emphasis on data and analytics.

The fintech sector is no exception. Ironically, although data powers much of fintech innovation, analytics remains one of the sector's biggest challenges. Previous research found that 81% of fintechs globally say data is their biggest technical issue, while 41% are struggling to use data for analytics, machine learning and artificial intelligence.

Most founders understand the value data insights can bring to operations and customer service. Even so, many are reluctant to invest early in data infrastructure and expertise, either because it seems like an unnecessary capital outlay or because it feels like a lower priority while they focus on keeping the business running. That is the wrong approach. If the ultimate goal is to exit or list, a fintech will be better placed to achieve it by building the right data policies, expertise and infrastructure into the fabric of the business.

Everything does not need to be in place from day one. But founders do need a strategy that will allow them to build towards collecting the critical data points required to answer the questions investors will ask. Doing so also lays the foundations for taking advantage of the latest generative AI advances. AI applied to a weak data foundation is unlikely to deliver results. Applied to the right data foundations, it can transform the value of a business.

Fortunately, the data points private equity firms now value most are often the same insights that help leadership teams make better decisions as the business scales. The key with any data project is to start with the questions you want to answer. That means understanding what modern private equity professionals care about. Ask what metrics, beyond simple revenue figures, best tell the story of the company's success and potential. It could be the diversity of the customer base, geographically and by sector. It could be the strength of recurring revenue, the longevity of products or the rapid growth of a new service. It may even be the company's approach to customer service and marketing, and how that links to retention and growth.

Once there is a clear picture of where the real strengths and unique selling points lie, the next step is to build the data collection, management and analysis systems needed to prove that case to investors.

The benefit of this approach goes beyond supporting an initial pitch. Investors are increasingly using near real-time data analysis to monitor portfolio performance. If a company has its data in order, that process becomes much easier. It can also make the business more attractive by showing that a potential acquisition or investment can plug into existing systems with less friction. For buy-and-build firms that prioritise compatibility and synergy across acquisitions, deep data insight is especially valuable. Most importantly, it helps leaders run the business day to day, understand where to focus their time and decide where to place their bigger bets."