The Kalifa Review of UK Fintech – A Vision for the Future of Fintech

The Review outlines the success of the approach taken by, for example, the FCA in supporting new fintech firms through smart regulation. The Review highlights, among other examples, the FCA’s regulatory ‘sandbox’ which allows innovative firms to test new, unregulated financial services in the market. However, it also makes clear that the UK’s position as a fintech leader is not guaranteed, and that continued innovation is essential. The Review makes recommendations in five critical areas: policy and regulation, skills, investment, international, and national connectivity.

Policy & Regulation

The Review recommends a new regulatory framework for emerging technologies. This digital finance ‘package’ would give firms a focal point for regulation and would address issues surrounding data, AI, the digitisation of financial services and ESG. Part of this new regime would include a Digital Economy Taskforce with a clear mandate to deliver the UK government’s fintech strategy.

The Review further recommends building on the success of the ‘sandbox’ by expanding its remit and by making it a permanent feature. A ‘scalebox’ should also be created to engage in an ongoing dialogue with and support firms in their growth phase.

The final recommendation in this area is that fintech needs to become an integral part of UK trade policy. With the UK currently numerous trade negotiations currently underway, this would put the industry at the forefront of policymakers’ minds and would be a great advertisement for UK fintech.

Skills & Talent

The Review notes that the UK lags behind its competitors in terms of the specialised talent required by firms in the fintech sector. It makes three recommendations to address this. The first is to retrain and upskill adults in the UK by engaging people in short courses, delivered by high-quality providers, and led by an independent steering committee.

The second recommendation is for a new visa stream to provide a fast-track process for those with the required skills who have a job offer from firms working in the fintech sector at the scale-up phase. The final proposal in this area is to increase the numbers of young people entering the fintech sector by supporting fintech scaleups to offer work placements. These changes would ensure that firms have access to the talent they need.

Investment

While highlighting the impressive track record of listings by fintechs on the London Stock Exchange (LSE) over the last few years, the Review urges the UK government to act rapidly in order to compete with active competitor exchanges around the world. There are a number of recommendations in this area, including broadening the application of existing UK state-aid tax incentive schemes to encourage early stage investment and creating a growth fund with a focus on fintechs modelled on the Business Growth Fund. 

The Review also recommends reforms to the public listing requirements on the LSE. These include a reduced free float requirement, the introduction of dual class share structures to allow founders and other pre-IPO holders to retain enhanced voting rights, and the maintenance of current rules around pre-emption rights which permit on a case-by-case basis up to 20% of a company’s issued share capital to be placed. Such changes would make listing on the LSE even more attractive.

International Attractiveness & Competition 

The Review considers some of the ways that other jurisdictions are attracting in-bound investment and out-bound growth in the fintech space and makes three broad recommendations. Though it stops short of proposing a wholesale new strategy, the Review encourages building on the existing work of the Department for International Trade around commercial support such as hubs and concierge services, as well as active promotion of the fintech industry.

The Review recommends establishing a central body – the Centre for Finance, Innovation and Technology (CFIT) – to be responsible for delivering the actions put forward in the Review in relation to international growth. Another recommendation is to launch an International Fintech Credential Portfolio, which would help fintech firms build trust with international institutions through authentication, data security and regulatory compliance. The Review states that the ability for fintechs to grow ‘out’ of their home markets is a key consideration for fintech startups, and these changes will give founders confidence that this is possible in the UK.

National Connectivity

Finally, the Review goes into detail about the spread of fintech firms across the UK, and notes the high growth in investment other jurisdictions saw as a result of better connectivity. It recommends nurturing growth in the top 10 fintech clusters in the UK and using CFIT to push for and co-ordinate improved UK connectivity and more investment in these clusters. Proximity (both physical and virtual) to talent, funding and other commercial partners is important for firms throughout their lifespans. Therefore, investing in infrastructure is as important for fintechs as for other businesses. 

Next steps

The government is examining the Review’s findings and will publish a formal response in due course. In the meantime, some of the recommendations in the Review might happen faster than expected. 

Following the Chancellor’s indication that he intends to launch a fast-track visa programme for tech workers, Budget 2021 set out plans to introduce “an elite points-based visa” with a “‘scale-up’ stream” by March 2022. This should enable those with a job offer from a recognised UK scale-up to qualify for a fast-track visa. Furthermore, the recent UK Listing Review recommends that the LSE permit dual class share structures on premium listings.

Firms should stay up-to-date with the UK’s fintech regime to ensure they are ready to act on any changes that are made in light of the Review’s recommendations.

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