UK Fintech and the Kalifa Review

In 2020, the Chancellor asked Ron Kalifa OBE to conduct an independent review to identify priority areas to support the UK’s fintech sector. The Kalifa Fintech Review Final Report was published on 26 February 2021. 

The review comments that whilst the UK’s position in fintech is well established, its future is not assured. There are three threats to the UK’s fintech position which have been identified by the review:

1. Competition: UK fintech faces competition from overseas centres
2. Brexit: Brexit has caused regulatory uncertainty
3. Covid: The pandemic has accelerated digital adoption globally 

The review also notes three opportunities for the future of fintech:

1. Jobs: Fintech can create high income tech-based employment and contribute to    up-skilling the current workforce
2. Trade: Fintech is seen as a core asset for Global Britain
3. Inclusion and Recovery: Fintech can be used to support citizens and small businesses access a wider range of better and cheaper financial services. 

The review is divided into five sections with various recommendations aimed at enabling the UK “to move from being a global leader in fintech start-ups, to the best place to scale a business, and take solutions from IP creation through to widespread adoption.” 

The list below provides a summary of the recommendations:

Policy and Regulation

• Deliver a digital finance package that creates a new regulatory framework for emerging technology with a comprehensive fintech strategy.
• Support firms focussing on innovative technology to grow by implementing a “Scalebox”. This would provide support to such firms by providing a forum for financial institutions, fintechs and regulators to work together and involve making the digital sandbox pilot a permanent scheme while also enhancing the Financial Conduct Authority’s own Regulatory Sandbox. 
• Establish a Digital Economy Taskforce responsible for collating multiple departments’ and regulators’ fintech competencies and functions into a policy roadmap, providing a “single customer view” of the government’s regulatory strategy on tech and a single touch point for the private sector to engage.
• Secure fintech’s position as an integral part of trade policy with a coherent and consistent approach.

Skills and Talent

• Retrain and up-skill adults to meet the needs of UK fintech. This should be done by access to short courses from high-quality education providers at low cost. 
• Create a bespoke “Fintech Scaleup Stream” to enhance access to international talent for fintech scaleups in a flexible, cost efficient and accessible manner. 
• Support fintech companies to offer embedded work placements to Further Education and Higher Education Students and Kickstarters. 

Investment

• Broaden the application of existing UK state-aid tax incentive schemes by expanding research and development tax credits, the Enterprise Investment Scheme and Venture Capital Trusts.  
• Unlock institutional capital to create a £1 billion “Fintech Growth Fund”. This would be used to develop a world leading fintech ecosystem. The fund would be modelled on the Business Growth Fund and be aimed at supporting firms’ growth from Series B to pre-Initial Public Offering stage. 
• Improve the listing environment through free float reduction, dual class shares and relaxation of pre-emption rights. 
• Create a global family of fintech indices.

International Attractiveness and Competitiveness

• Deliver an international action plan to support and enhance the international growth of the UK’s fintech sector. 
• Launch an international “Fintech Credential Portfolio” to support international credibility and increase the ease of doing business in the UK. 
• Drive international collaboration through the Centre for Finance, Innovation and Technology. This central body, run by the private sector and sponsored by the government would bring together the UK’s existing capabilities, offer practical support and create new digital collaboration opportunities. 

National Connectivity

• Nurture the high growth potential of the top 10 fintech clusters. This approach is anticipated to create the strongest return at the fastest pace. 
• Use the Centre for Finance, Innovation and Technology to drive a national coordination strategy, with the aim of ensuring future fintech competitiveness and growth across the UK connectivity. 
• Use further investment to accelerate development and growth of fintech clusters.

The recommendations could have a large impact on the future of UK fintech. The review notes that investment into UK fintech stood at $4.1 billion in 2020, which is more than the next 5 European countries combined. Furthermore, the review also states that the global fintech market is forecast to be worth circa £380 billion revenue by 2030. 

Ultimately, the review seeks to advance three objectives;

• “Ensuring UK fintech has the resources to grow and succeed
• Creating the conditions for continued widespread adoption of fintech solutions to benefit businesses and individuals
• Maintaining and advancing UK fintech’s global reputation for the innovation and transformation of financial services” 

To read the whole report, please click here

The HM Treasury is expected to publish a response to the report in the coming months.