The conclusion of the long-awaited strategic review of UK fintech, led by the former Chief Executive of Worldpay, Ron Kalifa, has provided the government with an important opportunity to set out the vision it wants to project of the UK following both COVID-19 and Brexit.
The report comes out at a time of some uncertainty in UK financial services. While discussions continue with the EU on a potential deal on regulatory equivalence, (which may or may not address the issue of market access for UK financial service firms), it is clear that those in government wish to pursue a new vision for the City of London, which prioritises new and emerging areas of finance – of which fintech is a major component. Furthermore, the government wishes to show that UK’s newly won post-Brexit regulatory freedom can deliver tangible benefits to the sector, ensuring a flexible and tailored regulatory environment that encourages new and innovative fintech firms and ensures London and the UK retains its competitive edge.
As Kalifa set out at the launch event the fintech sector is already a success story, with the UK holding 10% of the global market share and ranking second for investment levels (well ahead of the rest of Europe). Among other things, Kalifa commends the FCA’s support for a regulatory sandbox that allows fintechs to test emerging technology in close cooperation with the regulators, something credited with having significantly fostered innovation in recent years.
The report, commissioned by the Treasury, sets out a broad range of proposals to protect the UK’s position as a global hub, and to expand its potential for further growth, covering policy and regulation, skills, investment, international collaboration and national connectivity. Recommendations focus on driving innovation, opening up more sources of investment (including making it easier to list), and ensuring fintechs have access to the best talent by both increasing skills in the UK and by attracting the best and the brightest from abroad. The breadth of the conclusions has been welcomed by business groups, with The Entrepreneurs Network calling it “a report that deserves to – and will – be taken seriously.”
The recommendation of a new fast track visa stream specifically to attract talent from abroad has been particularly welcomed by the sector. The Chancellor confirmed over the weekend that this week’s Budget will announce the introduction of just such a scheme, citing fintech as a key beneficiary and arguing that the visas will be “a calling card for what we are about”. The Coalition for a Digital Economy’s (COADEC) Executive Director Dom Hallas welcomed the news, saying “it has to address the key challenge start-ups face with the visa system: crippling bureaucracy”.
While the UK has established itself as a leading hub for fintech investment, Kalifa’s report sets out further steps to unlock funding for both start-ups and scale-ups, recommending the expansion of the Enterprise Investment and Venture Capital Trust Schemes and R&D tax credits, and the creation of a £1bn Fintech Growth Fund. It also addresses a key concern of the sector around the existing requirements for firms wishing to list. This links to wider calls for changes to the UK’s listing regime, which the Treasury commissioned the UK’s former EU Commissioner Lord Hill to review late last year. Lord Hill’s review will be published alongside the Budget this week and is expected to reinforce a number of recommendations made by Kalifa, with whom he worked closely in the course of his own review. Among likely measures are the introduction of dual class shares that allow founders to retain more control after listing and a reduction in free float requirements.
Indeed, it is the link between these two key reports that indicates the wider political significance of the sector for the government, particularly given the absence of financial services from the UK-EU trade deal and the likelihood that current talks with the EU will not agree anything close to equivalence for the UK’s regulatory regime. The spotlight has therefore been increasingly trained on what the UK needs to do to retain its global position, not least following the well-publicised news last month that Amsterdam has overtaken London as the top European share trading centre.
The government is determined to encourage more businesses to list in London, rather than looking to New York or elsewhere. This is something the Kalifa report addresses directly, pointing to figures showing that the UK accounted for just 4.5% of the almost 4,000 IPOs on the major stock exchanges between 2015 and 2020, with the US’s share through the NASDAQ and NYSE standing at 39%. Fintech listings are a central part of the strategy to improve the UK’s share of those IPOs.
Projecting a post-Brexit vision of the UK as a global leader in fintech, open to foreign talent and making it easier to start, scale, and list a business is now likely to form a key part of the Chancellor’s Budget this week. The sector and investors have been encouraged by ministers’ words welcoming the report’s recommendations. Expect them to now keep the pressure up on the government to deliver on them.