Following the 2020 Budget, the Chancellor asked Ron Kalifa OBE to carry out an independent review of the UK’s fintech sector to establish priority areas for industry, policy makers, and regulators. The Kalifa Review of UK Fintech (the “Review”) is now published, which:

  • sets out the key threats and opportunities for the fintech sector;

  • proposes the creation of a Centre for Finance, Innovation, and Technology (“CFIT”); and

  • recommends a Five-Point Plan for the UK fintech sector.

The Review sets out three broad threats to the UK’s position as a leader in the fintech sector:

  1. Competition – the Review notes that overseas centres are seeking to emulate the UK’s success.

  2. Brexit – the Review notes that Brexit has created regulatory uncertainty in areas relevant to fintech.

  3. Covid – the Review explains that the pandemic has accelerated digital adoption globally which has created opportunities for jurisdictions which are quick and nimble in capitalising on opportunities.

The Review sets out three broad opportunities for the UK’s fintech sector

  1. Jobs – fintech has the potential to create high income tech-based employment throughout the UK and is expected to contribute £13.7bn in gross value added to the economy by 2030.

  2. Trade – enabling fintechs to achieve global scale via access to international markets, and the UK should continue to lead on regulation and standard-setting in fast-moving tech.

  3. Inclusion and Recovery – supporting citizens and small businesses to access more, better, and cheaper financial services.

The CFIT and the recommendations set out below are intended to challenge the threats and take advantage of the opportunities.

Centre for Finance, Innovation and Technology

The proposed CFIT is an organisational link required to accelerate growth. It will co-ordinate the approach to fintech market development and operate pre-product development, facilitate data sharing, build partnerships between start-ups and incumbents, and create proofs of concept to be scaled.

The Review proposes that CFIT be created with specific deliverables and targets:

  • increasing fintech adoption rate;

  • increasing the percentage of SMEs making use of external finance;

  • doubling the number of UK domiciled fintech unicorns;

  • increasing the number of fintech listings on the London Stock Exchange;

  • increasing the number of fintech jobs; and

  • growing the UK fintech market share.

The CFIT will also set up three industry coalitions on: small and medium sized enterprise (“SME”) finance, open finance, and digital identity, to bring together businesses to solve the challenges of scaling solutions and creating economic benefit.

Recommendations

The Review makes recommendations in its Five-Point Plan:

  1. Policy and regulation;

  2. Skills and talent;

  3. Investment;

  4. International attractiveness and competitiveness; and

  5. National connectivity.

1. Policy and Regulation

The Review notes that the UK is a global leader in its policy and regulatory approach to fintech. To ensure this approach continues, protects consumers and enables growth and competition, the Review makes four proposals:

  • Delivering a digital finance package that creates a new regulatory framework for emerging technology. This asks the UK to prioritise new areas of growth and cross-industry challenges such as financial inclusion and specific policy initiatives such as digital identity and data standards.

  • Implementing a “Scalebox” that supports firms focussing on scaling innovative technology: this would enhance the regulatory sandbox by making a permanent digital sandbox pilot, supporting partnering between incumbents and fintech and regtechs, and providing additional support for growing regulated firms.

  • Establishing a Digital Economy Taskforce (“DET”): the DET would be responsible for collating the multiple departments and regulators which have competencies and functions in fintech, into a policy roadmap for tech and digital creating a “digital finance package” and providing a single touchpoint for the government’s regulatory strategy on tech.

  • Ensuring that fintech forms an integral part of trade policy: developing the UK’s global trade policy in relation to fintech, ensuring a coherent and consistent approach, and securing commitments in relation to future trade agreements that will benefit fintech.

2. Skills and Talent

The Review notes the rich pool of fintech talent in the UK and the need for fintechs to hire such talent. The Review has set out three proposals in relation to skills and talent:

  • Retaining and upskilling adults to meet the needs of UK fintech by ensuring access to short courses from high-quality educational providers at low cost.

  • Creating a new visa Stream to enhance access to global talent for fintech scaleups.

  • Build a pipeline of fintech talent by supporting fintech scaleups to offer embedded work placements to Further Education and Higher Education students and Kickstarters.

3. Investment

The Review notes how crucial private funding has been to the success of UK fintechs. It sets out three proposals in relation to investment:

  • Expanding research and development tax credits, Enterprise Investment Scheme and Venture Capital Trusts: most founders have used tax-incentivised investment schemes, nearly half were concerned about their ability to qualify for such tax relief if their business models switched from being unregulated to regulated in the future.

  • Unlocking institutional capital to create a £1bn “Fintech Growth Fund” of sufficient scale to act as the catalyst in developing a world leading ecosystem: the government to use its influence to support the concept of a domestically funded growth capital investment vehicle focussed on fintech.

  • Improving the listing environment through free float reduction, dual class shares and relaxation of pre-emption rights: This would make the UK more competitive in initial public offerings for fintechs.

  • Creating a global family of fintech indices to enhance sector visibility: Once enough UK fintech companies have listed and formed a sub-sector, a UK index will be created for all UK fintech stocks.

4. International Attractiveness and Competitiveness

The Review notes that the UK government has been involved in several international initiatives and needs to make a statement about its openness post-Brexit. It has set out three proposals in relation to international attractiveness and competitiveness:

  • Delivering an international action plan for fintech: this would be a combination of public and private sector priorities and identify sectors and markets with potential to scale up.

  • Driving international collaboration through the CFIT and launching an international fintech taskforce: this would be led by government with the purpose of gathering fintech and industry to achieve progress against the “international plan for fintech”.

  • Launching an international “Fintech Credential Portfolio” (“FCP”) to support international credibility and increase the ease of doing business: this would be led by CFIT and help fintechs demonstrate an international sign of quality, resilience, trust, and standing in international markets.

5. National Connectivity

The Review notes that the UK will need to focus on scale and supporting regional specialisms to maintain its position as a fintech hub. It has set out three proposals in relation to national connectivity:

  • Nurturing the high growth potential of the top 10 fintech clusters: each cluster would produce a three-year strategy to support growth, foster specialisms, and enhance national connectivity.

  • Driving national coordination strategy through CFIT: this would include a data-led approach to maintain a national fintech data base which can be easily accessed.

  • Accelerating the development and growth of fintech clusters through further investment, such as in research and development.

The Kalifa review sets out recommendations which will be welcome to the fintech community. Its focus is UK-wide, and international, and it helps to resolve a wide range of difficult issues facing the fintech sector.

On Budget Day it seems unlikely the Chancellor will have the opportunity to incorporate any of these suggestions. However, the report invites the public and private sector to return to the report one year from publication to consider the progress made.

Article co-authored by Hannah Manning.

This article was first published in Thomson Reuters on 2 March 2021.