HM Treasury released the Kalifa Review today, in which the findings of the Independent FinTech Strategic Review are published. Since July 2020, I served as the Policy and Regulation chair of the review and am confident that the recommendations we put forward can drive growth in the UK, not just for FinTech, but for financial services as a whole and the economy at large.
Why does that matter? There’s a raft of potential benefits. FinTech can help drive efficiency across financial services, support financial inclusion, prevent fraud, improve operational resilience and promote competition. With the right support, it can be a driver of economic growth. It represents the future for innovation in financial services – and it’s an area that’s only going to grow. The UK needs to be at the heart of that growth to retain its place as a global financial centre.
And we’re well set up to do that. After all, we’ve done it before. The UK first became a global financial centre because it moved quickly to implement electronic markets. London’s most recent incarnation as a leading global financial centre, resulted from the infamous Big Bang of the 1980’s, where the UK led the way on the electronification of trading and broadened the participation in the regulated financial markets beyond a few specialist firms. Since then, it has remained a desirable place to do business thanks to its openness and its established network and infrastructure. Of course, Brexit has put the pressure on – although at present there’s no obvious main EU competitor, with five potential locations across Europe competing with one another to be the frontrunner, Amsterdam for equity trading, Dublin and Luxemburg for asset managers, Frankfurt as a hub for investment banks and Paris for derivatives. London still has the edge with all asset classes forming a complete ecosystem.
Other jurisdictions are putting in place measures to attract FinTechs. It’s time to act to re-assert the UK’s position, to create an environment where FinTech can flourish, and to make FinTech more attractive to UK investors. In particular, we need to look at our regulatory system and ensure that it promotes innovation and competition to encourage the growth of FinTech in the UK.
Let me walk you through the key recommendations from the Kalifa Review on how policy and regulation can help make London, and the whole of the UK, the destination of choice for FinTech.
1. Develop a comprehensive strategy for FinTech
First off, we need a clear and comprehensive FinTech strategy. Developing and delivering this will require the creation of a dedicated task force, sponsored by HMT – at present, there are numerous government departments and financial regulators that all have an influence, but all have different objectives.
The FinTech task force would set out clear objectives, actions and timescales for developing and implementing the strategy. Part of this would involve identifying any priority areas – such as RegTech and cyber security. It should also include a thorough review of current rules and regulations to ensure they’re keeping pace with technology and market developments. Throughout the review, we met with over 320 stakeholders from over 220 firms, and what was clear from the discussions is that some regulations currently inhibit growth. That’s one of the reasons we recommend that regulations should be technology neutral to avoid favouring any particular participants.
2. Implement a ‘scalebox’
To help the UK maintain its place as a market leader, the Kalifa Review recommends establishing a ‘scalebox’ to support FinTech firms – especially FinTechs still in their growth phase or those innovating in identified priority areas. Support could be given even when a proposal is not the first of its kind (innovative). And the support should extend beyond regulatory to provide a plug and play development environment, physical collaboration spaces and access to a broader set of tools including professional services.
Many of the firms contributing to the FinTech review said their growth was being held back by regulations designed for larger, more complex financial services organisations. It could make sense then to consider how regulations could be ‘right sized’ to be proportionate to the risks presented by a business. These would then become stricter as FinTechs developed.
3. Adopt policies that create a supportive environment
There are a number of areas where policy initiatives could help establish an environment where FinTechs can flourish. Here are just three of the many we recommend in the Kalifa Review:
4. Embed FinTech within future trade agreements
We want the UK to be the home of FinTechs – but part of that is demonstrating that being here doesn’t block access to international markets and customers. Our new trade relationship with the EU has clearly impacted that. That’s why we need to recognise the importance of FinTech to growth when we’re entering trade negotiations with other countries and regions. We should take a consistent approach to trade policy on digital matters and seek to secure commitments in trade agreements that will benefit FinTech.
FinTech represents an opportunity for growth that we need to seize – if we don’t, others will. That’s going to take establishing a policy and regulatory framework that incentivises FinTechs to base themselves in the UK, and UK businesses to invest in FinTech.
There’s a great deal of work to be done. But with the right set of policies and regulation in place, backed by a government strategy, the UK can remain at the heart of FinTech, ensuring the UK retains its status as the global financial centre fit for the digitised financial markets of the future.