The Government has released its FinTech Sector Strategy (Strategy), which sets out plans for preserving and increasing the UK’s presence and influence in the sector. It aims to fulfil the opportunity for growth presented by FinTech – the average revenue generated by UK FinTechs grew by 22% from 2014 to 2016 according to the UK FinTech Census, with 42% of digitally active adults in the UK using some form of FinTech service, as stated in the FinTech Adoption Index 2017.
The Strategy identifies areas of action to better support UK FinTech, being reducing the burden of regulation, upskilling potential talent and expansion both regionally and internationally.
Streamlining the regulatory burden
The Strategy summarises how initiatives such as Innovation Hubs, Regtech and the Cryptoassets Task Force can make, and are making, compliance cheaper and simpler for FinTechs.
- The FCA’s Innovation Hub assists firms with applications to be regulated and helps FinTechs to understand regulatory frameworks. Similarly, their Regulatory Sandbox helps FinTech businesses develop compliant product prototypes. The recently released European Commission’s FinTech Action Plan acknowledged the success of these programmes and suggests they should be replicated across Member States.
- The Strategy accepts that the cost and burden of regulatory compliance is a principal challenge for UK FinTech. To help reduce this burden, the Government proposes to make the rules firms need to comply with machine-readable, potentially with automated or straight-through processing of regulatory reports. The results of the FCA’s call for input on its work in this area should be published in summer 2018.
- The Government will establish a Cryptoassets Task Force, consisting of HM Treasury, the Bank of England and the FCA. This will explore the risks of cryptoassets and the benefits of the underlying distributed ledger technology, also known as blockchain. Similarly, the EU Commission has launched an EU Blockchain Observatory and Forum. This aims to enable scalability, develop governance and standards and pool resources to resolve cross-sectoral issues of using blockchain.
Upskilling the UK workforce
The Strategy cites several ways in which to increase access to relevant skills and training, particularly digital skills such as coding. For example the:
- FinTech Delivery Panel (part of the TechCity UK Initiative) is partnering with Barclays Bank plc to deliver a Connect with Work programme. The programme recruits, trains and supports individuals taking up new roles within FinTech.
- Government has created a Digital Skills Partnership, which brings together national and local organisations. Similarly, the EU Commission has adopted a Digital Education Action Plan to enhance these skills, with a particular focus on cybersecurity.
The Government is supporting the international expansion of UK FinTechs. It has set up four ‘FinTech Bridges’ with the Asia-Pacific region, in Singapore, South Korea, China, Hong Kong and Australia. These establish links between governments, regulators and the private sector to reduce barriers to market entry and create international investment opportunities. In particular, the new UK-Australia bridge provides a framework for the two governments to harmonise policies, increase regulatory cooperation and provide support for UK FinTechs selling products and services in Australia. The Department for International Trade will support FinTechs to expand into global markets using these bridges.
The Strategy also outlines plans for regional expansion within the UK, including:
- appointing English and Scottish FinTech envoys to promote the adoption of FinTech by regional financial institutions by providing a communication channel between the FinTech community and the Treasury. There are plans to appoint similar envoys for Northern Ireland and Wales.
- TechCity UK building a nationwide FinTech programme. This will target early stage business to business FinTech companies across the UK, aiming to showcase and support exceptional FinTech talent.
- the FinTech Delivery Panel developing industry standards to facilitate partnerships between FinTechs and incumbent financial institutions. These would provide FinTechs with a consistent understanding of what financial services firms need before establishing partnership arrangements.
Building on a foundation of support
The Strategy notes that successive governments have supported the FinTech sector since 2010, by removing barriers to entry and growth. This Strategy marks the next stage of state support and investment for the FinTech industry. It is good to see that the Government is focusing on FinTech as a sector, and the opportunities it presents for the UK economy. However, it should be noted that the Strategy focuses as much on its strong foundation of support for FinTech, as forward looking initiatives. Therefore, it may not lead to dramatic improvements to the prospects of UK FinTechs in the near future.