Implementing the Kalifa Review of UK FinTech: lots done, more to do
by Janine Hirt, CEO, Innovate Finance
In the midst of last winter’s Covid lockdown, the UK FinTech ecosystem came together virtually to support Ron Kalifa’s independent review of UK FinTech, commissioned by UK Treasury ministers. My team at Innovate Finance and our tremendous colleagues at the City of London Corporation provided the secretariat. Ron’s report, published in February, provided a clear strategy and delivery plan to ensure the UK capitalises on the opportunities FinTech presents. Following last week’s Budget, now is a good time to take stock on what has been achieved this year and what lies ahead, including our plans at Innovate Finance.
The Kalifa Review contained actions for government, regulators and for industry, focused on five key areas: policy and regulation, skills, international, national and investment. Over the last eight months, we have been pleased to see a range of Government departments and regulators make commitments to take forward recommendations across these areas.
Policy and regulation: The Bank of England kicked off work on options for a Central Bank Digital Currency and has consulted on stablecoins. The FCA has been developing the Kalifa Review recommendation of a scale box and will be piloting this shortly. It is also creating a new ‘regulatory nursery’ to support start-ups, and will continue to develop the digital sandbox. The Department for Digital Culture Media and Sport (DCMS) has been progressing work on digital ID - with industry engagement through the joint UK Finance and Innovate Finance Task Force - and last week Rishi Sunak allotted additional funding over the next three years for an “ambitious agenda on data policy and digital identities”.
Investment: The FCA consultation on listings reforms over the summer took the Kalifa and Hill Review recommendations seriously. Their proposals on dual class shares and reducing the free float requirements should make the UK more attractive to founders seeking an IPO. In last week’s Budget, the Chancellor announced a review of the pension fee cap - which the Review identified as a block to institutional investment in longer term assets like FinTech scale-ups - and confirmed that R&D tax credits for innovation will be expanded to boost investment in FinTech applications such as AI, open banking and SaaS from April 2023.
Skills: Last week's Budget grasped the Kalifa Review recommendation on access to global talent: with a new Global Talent Network to identify and help highly skilled people move to the UK, and confirmation that the Home Office scale-up visa will go live in April 2022, a year after it was first announced by the Chancellor at Innovate Finance’s flagship IFGS 2021 conference.
International: The Department for International Trade (DIT) also announced additional support for FinTech exporters at IFGS 2021 in April – with a FinTech Export Academy and Export Champions - and their dedicated FinTech team and overseas trade commissioners remain highly engaged in promoting opportunities.
National connectivity: The Kalifa Review proposal for a new Centre for Finance, Innovation and Technology (CFIT) was backed by the Chancellor at our UK FinTech week in April and we were incredibly pleased to see him pledge £5 million of seed funding to set it up in the Budget last week. A Treasury update in August indicated that this will be a virtual body, focused on supporting the UK’s national FinTech hubs; commissioning and publishing new research on the UK FinTech industry; and coordinating industry ‘coalitions’ to look at how FinTech can collaborate to solve societal and economic challenges and shape new innovation in areas such as Digital ID, Open Banking and SME Finance. This is a much-needed addition to the UK FinTech ecosystem, and one we at Innovate Finance have called for as critical to strengthen national connectivity across the UK and deliver data-led insights and academic research into the sector to craft real solutions.
More to do
Taken together this represents significant progress in adopting the Kalifa Review recommendations. That is a testament to the work of John Glen, the City Minister, and his Treasury team as advocates across a wide range of different Government departments as well as the FCA and Bank of England.
That vast range of government bodies is why we will continue to make the case for one Kalifa Review recommendation that has yet to be adopted: the need for more formal mechanisms to strengthen the strategic cohesion of FinTech policies across government and the regulators. This is evident in some policy and regulation areas where progress has perhaps been slower: on digital ID, open finance and crypto regulation; areas where the Kalifa Review identified global opportunities for the UK and a risk of slipping behind other countries in the absence of a clear strategy.
Looking ahead, I see three areas to focus on:
- delivery: effective implementation and execution of the initiatives already in train.
- further development of the policy and regulatory framework to maintain the UK at the cutting edge of innovation.
- industry action, where the private sector and other organisations can best create value.
That brings me to….
The role of Innovate Finance
As the established industry body for UK FinTech, our role is to convene and connect our members and key stakeholders across the financial innovation ecosystem; to advocate and lobby for the innovators looking to create a more inclusive and democratic financial services sector for all; to support startups as they scale; to foster partnerships across the industry; and to champion UK FinTech on a domestic and global stage. We are proud to be the trusted source for UK FinTech and are excited about the positive future that lies ahead for the industry. We are committed to ensuring that the ecosystem builds on this outstanding energy and momentum, and does not rest on its laurels, to ensure the UK retains its leadership position in financial innovation and continues to be the best place in the world for FinTechs to start, scale, and grow.
On investment, our established FinTech Investment Landscape provides regular data-driven insights on the global FinTech sector. We will continue to work with our FinTech founders, investor members and partners to inform and support Government decision makers in ensuring a competitive policy and listing environment. Last year our Investor - Startup Speeddating Sessions saw more than £30 million invested into FinTechs; we will continue and expand this popular series to also focus on supporting underrepresented and diverse founders in 2022. We will also be working with our partners to launch a programme specifically supporting our members in pitching to domestic and international investors.
On skills, we have an important role to play with industry in terms of the re-training and work placement agenda set out in the Kalifa Review. We have launched a FinTech scheme with Women Returners, to help professionals re-enter the workplace after long-term or extended career breaks, and we continue to build on the success of our FinTech for Schools programme.
On policy and regulation, we will continue to develop and advocate for effective and efficient delivery of the Kalifa Review Policy Chapter recommendations. In addition to ensuring we have the right broader regulatory framework in place to support the industry, our recently-expanded policy team will continue to work closely with our members to champion and advocate for the needs of specific FinTech verticals, including SME lenders, 36H, BNPL, RegTech, payments, WealthTech, crypto and other emerging sectors that are seeking a regulatory approach that provides consumer confidence whilst promoting innovation. We will set up a new trade policy group, to provide clear Fintech input on trade negotiations and market access. And we will also continue to work closely with the FCA, the PRA and other regulators to ensure they have the industry access and feedback they need.
Our recent white paper on the role of FinTech in achieving Net Zero and our inaugural FinTech as a Force for Good Forum have advanced the Kalifa Review policy recommendations on the ESG agenda (Environment, Social and Governance). We will be building on this to champion policies that support FinTech net zero solutions and financial inclusion and well-being.
Picking up the Review’s international recommendations, we have launched a scaling to international markets series which builds on our partnerships with Fintech hubs around the world to increase the number of opportunities to scale overseas. We have also brought on board a new Head of Regulatory Affairs who will support our members in understanding the regulatory framework in key markets. We are now looking at how we can help amplify and join up activities with other partners promoting UK FinTech overseas - more on that soon!
In terms of national connectivity, we will continue to work closely with the Fintech National Network, which we are proud to have helped establish in 2019. CFIT will serve to strengthen our existing national collaboration. We look forward to bringing our members’ and the wider industry’s voice to the table as we support the development and execution of CFIT to make sure it effectively serves the ecosystem and delivers on pushing the national UK innovation agenda forward.
CFIT will complement and assist our own work and aims. It will create a necessary vehicle for critical research into the sector, delivering major initiatives across the UK, joining up the regional and national public sector and industry programmes (such as Innovate UK’s R&D programmes, levelling up funding and our devolved government and City mayors). Our independent advocacy at Innovate Finance will work alongside this, as we continue to shape the policy and regulatory environment. We look forward to partnering with CFIT on key programmes and bringing in the voice of the industry on these initiatives.
“FinTech is a permanent, technological revolution, that is changing the way we do finance” - Ron Kalifa
Over the past several years UK FinTech has been on a great journey, scaling and maturing into one of the UK’s fastest growing sectors. The Kalifa Review marked a recognition by Government of the importance of financial innovation to the economy and as a force for good in society. In the last year, we have seen investment reach record levels and some FinTech valuations match and exceed incumbents. The ecosystem is more dynamic than ever, with start ups, scale ups, big tech, reg tech and established financial institutions all driving innovation.
It is my privilege to represent this extraordinary sector. I look forward to continuing the implementation of the Kalifa Review: supporting and challenging government and the regulators; welcoming and helping CFIT as it grows; pushing for completion of the Review’s recommendations and developing the next chapters of an ever evolving agenda.