The UK seeks balance to best serve fintech startups
- There is a gap in how UK lawmakers, regulators and businesses see the best way to provide an encouraging environment to nurture and scale up fintech startups in the country
- The recent December 6 parliamentary session heard that “a lot of work needs to be done” for fintech
- To ensure the UK maintains its position as the best place in the world to start and grow a fintech business
Finding the sweet spot between extending the competitive edge in financial technology (fintech) while maintaining consumers safe is still a struggle for the UK. This was evident in its recent parliamentary hearings on the future of financial services as well as the work of the Financial Conduct Authority (FCA).
Fintech is an emerging sector that has strategic importance for the country. In February, the Kalifa Review of UK Fintech was published to identify priority areas to support the industry’s growth and extend the UK’s leading reputation in the global fintech ecosystem.
Ensuring the UK maintains its position for fintech startups
“Fintech is not a niche within financial services. Nor is it a sub-sector. It is a permanent, technological revolution that is changing the way we do finance,” Ron Kalifa OBE, who was tasked to do the independent review, wrote in the report. “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.”
“It was this country that launched the first Regulatory Sandbox to catapult exciting and innovative new products to market. We pioneered Open Banking, which has now taken the world by storm and we launched the Global Innovation Network to bring the international regulatory community together in order to test innovative fintech solutions,” said John Glen MP, economic secretary to the Treasury, in the report’s foreword. “Our goal is simple: To ensure the UK maintains its position as the best place in the world to start and grow a fintech business.”
Work required to realize UK fintech
Fintech Founders a network of the UK’s leading fintech entrepreneurs. By November, there were many signs of progress, showing the country’s commitment to realizing the plan. Yet, at the recent parliamentary hearing (6 December 2021), an industry representative said that “a lot of work needs to be done” for fintech. Christian Faes, chair of Fintech Founders, said some positive things are being done like the CFIT, “but nothing really substantive to hang our hat on”. Fintech Founders is a network of the UK’s leading fintech pioneers.
FCA’s’ weaknesses in regulatory supervision
“We learned the lesson that, if you allow a firm in at the gateway that is not adequately meeting the standards, it can cause quite a lot of issues further down the track,” Rathi told the hearing. “If I look at the work we are doing with crypto exchanges; when they come to us for money laundering registration, the reality is that nearly 90% of those have either withdrawn or been refused.”
Moreover, just as the demand for skilled talents outstrips the supply for fintech companies, the same is true for the FCA. “One of the consequences of more regulation coming into play for crypto firms is that they are all out there hiring compliance people who know about crypto. We have created a market for some of that talent,” he said, adding the scarcity is experienced in other parts of the world, too, owing to the technologies being new and continuing to emerge.
There is a gap in how the UK lawmakers, regulators, and businesses see it as the best way to provide an encouraging environment to retain the country’s leadership as the best place to begin, nurture and scale up fintech startups. However, their goal is the same. All that’s left is to find the balance that allows for best practices that serve all parties’ best interests.
26 May 2023
26 May 2023