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Now is the time for even bolder action to realise the Kalifa Review vision, industry players tell the UK government in a letter pushing for a regulatory overhaul.
Saturday (February 26) marks the one-year anniversary of the publication of Ron Kalifa’s independent review of UK fintech.
The review was commissioned by the Chancellor of the Exchequer to explore how the fintech industry, regulators and policymakers can work together to ensure the continued success of UK-based fintechs.
Co-signers of the letter, coordinated by Innovate Finance, include Starling, Monzo, Klarna and Checkout.com.
The UK retains its place as the top destination for fintech venture capital investment in Europe, bringing in $4.1bn as a sector in 2020, according to data published last year by the trade association.
Innovate Finance also ranks the UK second globally for fintech funding, behind the US at $22bn.
“It is clear that the above marks good progress made by the government, regulators, and industry,” the letter, signed by the various fintech chief executives, says. “But rather than resting on our laurels, it is imperative that we continue to build on this momentum and work together to establish an environment in the UK that is even more supportive of and conducive to innovation in financial services.”
Overall, many in the industry have faith that they have the regulators’ ear.
“I think that 100 percent, they are already listening,” Sam Handfield-Jones, co-CEO of fintech Seccl Technology, told VIXIO. “Sunak and the broader government recognise fintechs importance to the UK, and that given the UK's global importance in financial services in general, it’s natural for the UK to be the home of global fintech.”
The numbers speak for themselves: “£1 in every £4 invested in fintech globally is in the UK. That’s epic,” , continued Handfield-Jones citing other industry data.
Since the start of the pandemic, there has been a shift in financial activity and a surge in fintech adoption, said Wayne Johnson, chief executive of Encompass regtech and a co-signer. “Many consumers, businesses and financial institutions are adopting new payment methods and turning to technology solutions to support remote working and digital services.”
However, he cautioned: "During the last two years, we have also seen the increasing emergence of cryptocurrency and blockchain technology as mainstream payments alternatives, with instances of these being used in connection with money laundering and other nefarious activity.”
Going forward, Johnson continued, regulation must address this pandemic-induced trend in financial activity and adequately respond to new financial technology being deployed across the industry. “Fortunately, the UK, and London especially, has an innovative, world-leading fintech community, and this should be capitalised upon to encourage a regulatory framework that both supports innovation and provides a secure environment to test and learn.”
Among the issues that the letter calls on the government to tackle are the need for a crypto regulatory framework “to strengthen Britain's global position”.
“Across the multi-varied and fast-developing world of crypto and DeFi, we need to work together to create a clear UK strategy for growing global opportunities as well as managing risk.”
The CEOs have also raised the prospect of extending open banking’s reach, as well as ensuring innovation is enabled in areas such as artificial intelligence and data.
The Kalifa Review was far-reaching and when it came to the payments sector, suggested a move away from rules-based regulation is needed. This overhaul, it felt, would help the sector adapt.
It also proposed a number of other steps which could be taken to bolster the UK’s competitiveness in the fintech sector. This included developing a central bank digital currency, deploying a digital ID system and introducing a "scalebox" for more established fintech start-ups to complement the Financial Conduct Authority’s existing sandbox for firms looking to launch.
For Handfield-Jones, the opportunities now are two-fold.
“Rather than just relaxing visa requirements, which I’m fully supportive, we need to ensure we are going deep to unearth and upskill diverse talent pools in the UK,” he said, calling out the fact that fintech in the UK remains majority white and male. “Putting aside the social obligations here, we simply aren’t using talent pools to their full potential.”
To make matters even more confusing, £1bn of the apprenticeship levy that the government offers businesses to invest into apprentices is given back every year, Handfield-Jones continued. “The government is giving us money and we send it back. I think the root cause here is the usage of the apprenticeship levy needs to be relaxed so that companies can adapt it to their bespoke needs, whilst maintaining a high-quality bar.”
There needs to be a change in the investor mindset as well, he continued. “UK investors need to take more risk, invest earlier, back new ideas and not just jump on already successful businesses.”
“It’s like football clubs, invest time and money in your youth academy and don’t just buy players from Brazil otherwise your national team will suffer,” he quipped. “Allowing only a small increase in the percentage of UK pension funds invested in unquoted early-stage businesses, specifically series A and earlier, would change the game.”
