UK fintech strategic review calls for new regulatory framework

Chloe Weaver Date published: Mar 26, 21

The UK fintech strategic review has called for a new regulatory framework for the sector. The industry is now worth more than £11 billion a year to the UK economy and has a 10% share of the global market. Ron Kalifa, former Head of Payments at Worldpay, has led a review of the industry, published in February 2021.

The much-anticipated review, supported by the government, has found the UK is at a ‘pivotal moment’. However, it has warned that Britain risks trailing behind if suggestions are not quickly executed.

The review found three main risks for the industry: the COVID-19 pandemic, Brexit, and competition from overseas finance hubs such as Singapore, Australia and Canada. The pandemic has enhanced digital transformation around the world and other countries are swiftly catching up with the UK.

It marks a significant step in Chancellor Rishi Sunak’s proposal to make Britain the most open and attractive place in the world to initial the operation of financial services business. The government will now assess the proposals and respond in due course.

Setting out plans to capitalise on the growing sector, the Ron Kalifa fintech review wide-ranging strategy includes a new regulatory framework for developing technology, outlines the need to fund private investment and build on its existing attractiveness to start-ups firms and the expansion of tax credit schemes.

The full report detailed by the independent review has recommended a five-step plan which covers policy and regulation, skills and investment, international and national connectivity to enhance the financial services industry. The strategy will focus on leveraging opportunities which position the UK to be placed in pole position for becoming the hottest location to facilitate a fintech business being able to succeed on a global scale.

What does the recommended five-point plan cover?

Policy and regulation

Kalifa proposes the launch of a new digital finance package that would build a regulatory structure for emerging technology. The application of a ‘Scalebox’ will be introduced, aimed at supporting firms that concentrate on scaling innovative technology by improving the regulatory sandbox that is already in place.

It plans to support relationships between officeholders and fintech firms. As technology develops at speed, the industry and regulators must work hand in hand to ensure they keep up with these advancing technologies. The ‘Scalebox’ will arrange for firms focussing on innovative technology to receive additional support, such as ‘access to a broader range of tools, including professional and other business services’.

The report also suggests the implementation of a Digital Economy Taskforce, to organise several functions of regulators associated with fintech into a policy roadmap for a ‘single customer view’ of the government’s regulatory strategy.

Skills

In its second point, the report places importance on capitalising on the existing fintech talent pool in the UK. Kalifa has recommended the retraining and upskilling of adults in the industry, in order to develop homegrown fintech ability. This will be done by enabling access to education from high-ranking institutions at reduced costs. This is proposed alongside a new visa stream which would also increase access to international talent.

Investment

The Ron Kalifa fintech review seeks to establish a £1 billion “Fintech Growth Fund” of institutional capital to address a £2 billion fintech growth capital funding gap. The report explains this would be a market-led fund, financed by holders of domestic institutional capital.

The review observes that a ‘level playing field’ is needed for fintech companies when it comes to taxes. It plans to expand R&D tax credits, the Enterprise Investment Scheme and Venture Capital Trusts.

Improvement of the listing environment is also on the agenda, with a ‘free float reduction, dual class shares and relaxation of pre-emption rights.’

International

The review suggests making ‘a big statement about the international openness of the UK in a post-Brexit environment.’

It plans to drive international collaboration by launching an International Fintech Taskforce. The taskforce proposes collaboration through the Centre for Finance, Innovation and Technology (CFIT), and by launching an international ‘Fintech Credential Portfolio to support international credibility and increase ease of doing business.’

National connectivity

The review suggests a three-year strategy to nurture the high growth potential of the top 10 fintech clusters unique to the UK. An improved national coordination strategy throughout the Centre for Finance, Innovation & Technology has also been proposed.

Kalifa hopes to accelerate investment in fintech clusters in order to fast-track the development and growth, such as extra funding for the R&D of the fintech industry.

What’s next?

The new advised framework will need to be digested by the government. But it provides an enticing structure for scaling and driving the UK fintech sector ahead at pace, to compete with finance hubs across the globe.

Ron Kalifa, OBE, said:

We must continue to nurture our start-up culture, but crucially we must also give our high growth firms the support to become global giants.

With the right reforms that encourage entrepreneurialism, investment and make it easy to attract and invest in talent, Britain can usher in a period of dominance that can help us build back better from COVID-19.

The report concludes that UK fintech has had a mammoth decade. However, it also highlights that the industry is at a key point of opportunity and risk due to advancements in technology. These advancements can result in increased jobs for the sector, but also increased threats to the security of consumer and labour markets.

The recommendations set out in the fintech strategic review have come at a critical time and, as a result, a new regulatory framework for the UK’s fintech industry is now high on the government’s agenda.