FiNexus Labs: Leeds's "Digital Woodwork Shop"

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Jane Lambert

When he addressed the FinTech North event at Leeds Digital Festival on 26 April 2017, Christopher Woolard, Executive Director of Strategy and Competition at the Financial Conduct Authority said:

"We’re especially interested in areas where ‘Fin’ and ‘Tech’ collide, that is, areas that have both strong financial centres and a technology presence, often backed by strong relationships with local universities.
We’ve mapped these and we see two specific locations where we think we can add value to emerging hubs – namely in the Edinburgh-Glasgow corridor and the Leeds-Manchester area.
.......................
In Leeds, the development of a FiNexus Lab – a collaboration between local government, industry and central government – will be key to creating a fertile ground for FinTech firms to grow"

(see  his speech "The FCA's regional FinTech engagement" 26 April 2017 FCA website).

The FiNexus Labs is now inviting enquiries. It is described by its managing director, Christopher Sier, as a "digital woodwork shop" or, as the website puts it, "a multi-stakeholder project that will build a Leeds City Region-based digital innovation laboratory and hub on three key pillars ..... industry lab environment, startup ecosystem [and] centre for academic research." A graphic on the "About" page shows how the project is supposed to work.

"- An industry lab environment focusing on test & learn for the ecosystem consisting of access to advanced technologies, sandbox, hackathons (where industry meets start-ups), compliance protection, as well as UX testing tied into a free school / city user base

- A startup ecosystem that feeds into the wider Leeds economy and consisting of a fintech incubator

- A knowledge exchange hub for both physical and virtual networking and info depository consisting of events, conferencing, flexible meeting space, idea exchange, speed dating."

All this is expected to bring benefits for industry, academics and entrepreneurs. The enterprise is to be housed in a building under construction on the White Rose Office Park near Beeston. Its landlord, Munroe K is one of the project's partners together with Zerado and Singularity Universiy of the USA. The rest of the website is rather bare except for a blog with a few posts and a reference to a "Grand Challenge" and invitation to get involved,

It is not clear whether FiNexus Labs has attracted any businesses yet.  As you can see from the table in my article, Protecting FinTech Innovation  27 April 2017 NIPC Law there does seem to be a lot of fintech accelerators and incubators about nowadays but it would also appear from the DIFC's press release on the Dubai accelerator that demand for places in incubators and accelerators greatly exceeds supply (see FinTech in Dubai 3 Aug 2017 NIPC Gulf).

In my FinTech page, I noted that there were at least three sets of legal issues for fintech entrepreneurs:

• data protection particularly from next May when the General Data Protection Regulation takes effect;
• intellectual property issues as software, methods of doing business and the presentation of information are excluded from the definition of patentable invention as such, and
• regulation of the industry.

It is in this last regard that the Financial Conduct Authority is showing considerable flexibility and indeed originality with its regulatory sandbox. In his speech to FinTech North Mr Woolard promised to "work with the local authorities, development partners and firms in those locations, as well as the Scottish Government and the Treasury's digital envoys ..........  to encourage the emergence of more innovative firms, whether home grown or inward investors."

That leaves IP and data protection.  As I said in How far (if at all) is it possible to protect Innovation in Financial Technology? 12 Aug 2014 IP protection of fintech products and services is not easy but there are things that businesses can do. I shall follow this venture with great interest and will always be glad to help. I have been working in this area of law ever since I was legal advisor to VISA International for Europe, the Middle East and Africa in 1983 and contributed much to the early literature of fintech law,

Should anybody wish to discuss these issues, call me on 020 7404 5252 during business hours or send me a message through my contact form.

Further Reading

Date	Author	Title	Publication
03 Aug 2017	Jane Lambert	FinTech	NIPC Law
03 Aug 2017	Jane Lambert	FinTech Glossary	NIPC Law
12 Aug 2014	Jane Lambert	How far (if at all) is it possible to protect Innovation in Financial Technology?	IP Yorkshire

How far (if at all) is it possible to protect Innovation in Financial Technology?

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Although only three British companies were listed in the 2013 FinTech 100 rankings compared to 10 from India and many more from the USA our government aspires to make this country the world leader in financial technology (see "Plan to make Britain global centre of financial innovation set out by government" 6 Aug 2014). With over 42,000 people employed in the financial services in 2012 Leeds hopes to develop a local financial technology industry. As part of the International Economic Conference that took place shortly before the start of the Tour de France, Pinsent Masons hosted a half day seminar called "At the Forefront of FinTech" to discuss the opportunities for fintech businesses in the City Region. On 16 July 2014 the dotForge accelerator announced plans to set up the first fintech accelerator outside London in Leeds ("New “fintech” accelerator for Leeds" 16 July 2014 Yorkshire Post).

In Fintech The UK’s unique environment for growth UK Trade and Investment listed several advantages for the UK:

"– the presence of a large and technologically sophisticated customer base
– London’s position as a world-leading centre for financial services
– good availability of business capital
– a supportive regulatory approach
– excellent financial services infrastructure, and
– London’s position as a global trading hub."

All that is very true but the UK does suffer one important disadvantage in relation to its global competitors which is that it is very difficult to protect investment in the development of financial technology in this country.

The problem is that s.1 (2) of the Patents Act 1977 declares that

"the following (among other things) are not inventions for the purposes of this Act, that is to say, anything which consists of -
(a) a discovery, scientific theory or mathematical method;
(b) a literary, dramatic, musical or artistic work or any other aesthetic creation whatsoever;
(c) a scheme, rule or method for performing a mental act, playing a game or doing business, or a program for a computer;
(d) the presentation of information......"

Much of the technology used in the financial services industry are computer programs. methods of doing business or the presentation of information. These exceptions are themselves subject to the following proviso:

"but the foregoing provision shall prevent anything from being treated as an invention for the purposes of this Act only to the extent that a patent or application for a patent relates to that thing as such."

Those words - particularly the last two - enable a skilful patent attorney occasionally to draft a specification for a software implemented invention that can be patented but that is not possible for all such inventions. Other countries that are party to the European Patent Convention which include all our EU competitors have similar statutory exclusions as their laws like ours have to correspond to art 52 (2) and (3) of the Convention; but there are no similar statutory exclusions in American, Chinese, Indian, Japanese or Korean patent legislation.

In his  speech at the launch of the new trade body for FinTech, 'Innovate Finance' 6 Aug 2014 the Chancellor of the Exchequer said:

"We’re introducing the right tax regime for this new industry.

• With major new incentives to encourage investment in start-ups

• Patent Box, so that if you invent in the UK you only pay 10% on those profits

• and now we will allow peer-to-peer lending in ISAs."

The exclusion of many software implemented inventions from patent protection renders nugatory at least one of the incentives to innovation that the Chancellor of the Exchequer announced in his. Without a patent nobody can take advantage of the patent box.

In Digital Opportunity A review of Intellectual Property and Growth Prof, Hargreaves advised the government to

"work to ensure patents are not extended into sectors, such as non-technical computer programs and business methods, which they do not currently cover, without clear evidence of benefit."

 HMG accepted that recommendation without demur in The Government Response to the Hargreaves  Review of Intellectual Property and Growth:

"The Government will resist extensions of patents into sectors which are currently excluded unless there is clear evidence of a benefit to innovation and growth from such extension."

There was no debate on the legal protection of financial technology during the passage of the Intellectual Property Bill through Parliament not even any detailed discussion of the topic during the extensive consultation on the implementation of Hargreaves' recommendations.

If they can't protect financial technology with patents then the new businesses that the Chancellor hopes to encourage including any that may be set up in Leeds will have to rely on other intellectual property rights. Traditionally software houses have relied on copyright and trade secrecy to protect their technology but that does not work terribly well with free open source software and decisions such as the judgment of the Court of Justice of the European Union in C-406/10 SAS Institute Inc v World Programming Ltd  [2012] WLR(D) 131, [2012] EUECJ C-406/10, [2013] BUS LR 941 do not help. That leaves trade marks that protect a business's brand but not its technology and the advantage of being first in the field.

In the USA there is extensive discussion on intellectual property protection of financial technology (see for example the slides for Wilmer Hale's webinar What Should Financial Institutions and FinTech Companies Be Doing?  6 March 2013 but I struggle to find similar discussion here. If I were a business angel or manager of a private equity fund I am not sure that I would be particularly happy with that.