UK Kalifa Fintech Review: Policy Recommendations for Keeping the Fintech Boom Going

The long-anticipated report on the UK Fintech ecosystem and recommendations as to how to keep the robust market growing in a post-Brexit world has been published today. The Kalifa Review of Fintech seeks to provide a roadmap for the UK to maintain its prominence in the burgeoning digital transformation of financial services.

In 2020, the UK Chancellor of the Exchequer asked Ron Kalifa OBE to pursue a report that would identify policy initiatives to support the growth of Fintech. The UK has long been a noted Fintech hub with a vibrant startup scene and a regulatory environment that has been recognized for its willingness to embrace change. The Fintech sector has generated hundreds of new services and tens of thousands of new jobs driving economic prosperity. As noted in the report, UK Fintechs represent 10% of the global market share and £11 billion in revenue, the UK is labeled as a “dominant force in Fintech.” Investment into UK Fintechs in 2020 was reported at $4.1 billion, an amount that is more than the next 5 European countries combined. London has long been a noted financial hub but competition is keen and Brexit has created new challenges.

The UK government notes that the Kalifa Review of UK Fintech:

“…highlights the opportunity to create highly skilled jobs across the UK, boost trade, and extend the UK’s competitive edge over other leading fintech hubs. It sets out a series of proposals for how the UK can build on its existing strengths, create the right framework for continued innovation, and support UK firms to scale.”

In an introductory statement, Kalifa explains that Fintech is not a niche within financial services:

“It is a permanent, technological revolution, that is changing the way we do finance. Its essence is in both fast-growing Fintech companies, and the investment and use of technology by our incumbent financial institutions. It’s in the way we regulate previously unknown technology and set new standards. But most importantly, it’s about delivering better financial outcomes for customers, especially consumers and SMEs. We want to deliver these outcomes across the UK and export them to the world. If the UK is to retain its position as a global leader in financial services, then we must lead this technological revolution. Just as we led in previous industrial revolutions, we must do so again in this one.”

The 108-page document outlines a five-point plan to sustaining and growing the strategically important sector of industry. In brief, the policy recommendations are highlighted below.

Policy and Regulation

  • Deliver a digital finance package that creates a new regulatory framework for emerging technology
  • Implement a “Scalebox” that supports firms focusing on scaling innovative technology
  • Establish a Digital Economy Taskforce (DET) to ensure alignment across government
  • Ensure that Fintech forms an integral part of trade policy

Skills

  • Retrain and upskill adults in support of UK fintech by ensuring access to short courses from high-quality education providers at low cost
  • Create 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

Investment

  • Expand R&D tax credits, Enterprise Investment Scheme, and Venture Capital Trusts
  • Unlock institutional capital to create a £1bn “Fintech Growth Fund” of sufficient scale to act as the catalyst in developing a world-leading ecosystem
  • Improve the listing environment through free float reduction, dual-class shares, and relaxation of pre-emption rights • Create a global family of fintech indices to enhance sector visibility

International

  • Deliver an international action plan for Fintech
  • Launch an international “Fintech Credential Portfolio” (FCP) to support international credibility and increase ease of doing business
  • Drive international collaboration through the Centre for Finance, Innovation and Technology, and launch an International Fintech Taskforce

National Connectivity

  • Nurture the high growth potential of the top 10 fintech clusters
  • Drive national coordination strategy through Centre for Finance, Innovation and Technology
  • Accelerate the development and growth of fintech clusters through further investment, such as in R&D

Key to success remains a pro-competition regulatory environment that is willing to accept change and support regulators as partners in the digital transformation and not as adversaries. In the past, it has been frequently mentioned that the UK Financial Conduct Authority has been a vital variable in fueling innovation in financial services. Yet this characteristic must not be taken for granted as policymakers can overreact when challenging issues arise. Additionally, Fintech must be integrated within a global trade policy as digital is clearly the future of finance.

Accountability is crucial, as well, and the report states that one year from today, both the public and private sector must report on the progress regarding the recommendations in the review. The document advises the UK government to consider appointing a Fintech “business champion” to support Fintech policy.

Charlotte Crosswell, CEO of Innovate Finance, welcomed the publication of the Kalifa Review calling it a vital intervention with the potential of setting the strategic direction for decades:

“The way that consumers and businesses are interfacing with financial services is rapidly evolving. We must respond to this changing dynamic and ensure we look to the Fintech sector to advance these solutions,” said Crosswell.

Crowdfund Insider received multiple comments in support of the Kalifa Review of Fintech.

Richard Ambrose, CEO of Azimo, stated:

“This is a thorough and deeply credible report that provides a blueprint for government support of UK fintech in the 2020s.  We welcome especially the recommendation of a fast-track visa scheme for global fintech talent.  The flow of highly skilled workers into the UK has been the key reason why fintech has flourished here over the last decade, but Brexit and COVID are putting that flow at risk.  It’s essential that we smooth the path for exceptional people to come to live and work in the UK, just as the US government did with its H-1B visa system.  And the report’s emphasis on ‘an international action plan for fintech’ is very timely as so many home-grown UK fintech success stories look to expand globally.”

David Nicol, CEO of LedgerEdge, a Fintech building a new corporate bond platform with distributed ledger technology, lauded the report:

“We are happy to see this call to accelerate investment and create a vibrant ecosystem for UK fintech startups. There’s a global arms race for talent and money in fintech, and we welcome the UK’s response to the challenge of providing a thriving environment for our exciting sector.”

We support the idea of developing alternative providers beyond incumbent banks, and Fintechs working with government, banks, and entrepreneurs to deliver solutions said Ian Duffy, CEO of Accelerated Payments:

“But we also need to champion the existing alternative providers that are already out there in the market and successfully delivering a lifeline for many businesses. This is particularly the case now as COVID-19 has led to unprecedented disruptions to the growth and operations of so many companies – and it’s even harder for entrepreneurs to get support from traditional finance providers.  Government and industry have to do more now to educate business owners about the availability of credit that is already out there and can help them during this challenging economic time.”

Ian Connatty, Managing Director of British Patient Capital, said that institutional investors are increasingly aware of the opportunities to back UK Fintechs:

“ As the largest domestic LP investor in UK venture and venture growth funds, we have deployed over £1bn since our inception in 2018 and, while we are sector agnostic, a significant portion of our underlying portfolio companies are fintechs. A trend common to all tech scale-ups is that these companies are remaining private for longer. One way for institutional investors to gain exposure to these companies, capturing the value created as they rapidly grow, is through venture growth funds. It’s a huge opportunity.”

Executive Summary of the Kalifa Fintech Review may be downloaded here.

The Kalifa Fintech Review may be downloaded here and is embedded below.


Kalifa_Fintech_Review_Final_Report UK 2.26.21

 

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