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Innovate Finance would like to offer many congratulations to the new Prime Minister Liz Truss on her appointment. We look forward to continuing to work with her and the government to further strengthen the UK’s position as a world-leading FinTech hub, and to realise the full potential of FinTech to create a more democratic, inclusive and effective financial services sector that works better for all.
<h4>FinTech: A UK Success Story</h4>
FinTech is a major strength of the UK economy. Last year Innovate Finance<a href="https://www.innovatefinance.com/capital/a-record-breaking-year-in-fintech/"> reported</a> a record-breaking $11.6 billion invested into UK FinTech, second only to the US and more than the next six European countries combined. We have consistently ranked number two in the world for FinTech investment, and number one in Europe, and our recent <a href="https://www.innovatefinance.com/capital/2022-summer-investment-report/">2022 Summer Investment Report</a> shows that we are on track to beat this number in 2022, as the sector has continued to grow with investment reaching $9.1bn – a 24% year-on-year increase from H1 2021.
The FinTech ecosystem has valued and benefited from the UK Government’s strong support over the years. However, there is still more to be done to ensure we unlock the full potential of innovation to create a better financial services sector for everyone, and as such it is imperative that we keep up the current momentum. In the coming months we as a society will face new challenges, and FinTechs have a critical role in supporting the consumer. Equally, it is important that we act now to encourage and harness even further innovation across the sector if we are to cement the UK as the world’s leading financial centre.
To build on the above, we have outlined six key areas for the new Prime Minister and Government to focus on. Delivering on these will ensure that the UK remains the best place in the world for FinTechs to start, scale and grow their businesses, and will allow consumers across the country to benefit from these new entrants and new technologies.
<h4>1. Unleash the power of FinTech to help businesses and households navigate the cost of living crisis </h4>
Over the last fifteen years, FinTech innovation has increased competition and given individuals and businesses new tools to better manage and grow their money, access finance, and build their knowledge and understanding of financial services. Challenger banks and alternative lenders have increased the supply of finance for small firms and now provide 65% of all SME lending across the UK, as well as offering tools that reduce costs and increase productivity. Our members are looking at how they can do even more to help their customers this autumn. FinTechs have the capability to reach most people and businesses easily and in targeted ways, and can diagnose financial vulnerability through data analysis. 
At the heart of the FinTech and financial innovation community has always been a drive to create a more democratic, inclusive, and effective financial services system that works better for all. Facing the cost of living crisis, it is now even more important that we support the FinTech community in realising its full potential of supporting individuals and SMEs.
Alternative lenders in the SME market face additional pressures in terms of the cost of wholesale funding. In 2020, the Bank of England introduced a Term Funding Scheme which enabled big banks to access cheaper wholesale funding over 4 to 10 years. Alternative lenders were not able to access this and they now face further increasing costs of capital. This also reduces their ability to use British Business Bank’s Recovery Loan Scheme which already has an interest rate cap that can make lending unviable due to higher wholesale capital costs and can prevent lending to customers whose risk requires an interest rate in excess of the cap. A wholesale fund for alternative lenders (perhaps building on existing British Business Bank schemes) could unlock significant lending capacity to small firms.
<h4>2. Foster a proactive regulatory regime which affords for greater innovation in the sector while protecting the consumer</h4>
We are supportive of the Financial Services and Markets Bill, including a competitiveness objective for regulators. This is critical to supporting proportionate rules that promote innovation and ensure better outcomes for consumers.
The Bill could, however, be bolder in putting in place a system that ensures that regulators do support international competitiveness. This includes strengthening the proposed competitiveness objective and extending the framework to the Bank of England and the Payments Systems Regulator (both of which will have a critical role in the regulation of new technology-led innovation).
There are a number of policy and regulatory areas where we must be more ambitious if we are to cement the UK as the global leader in FinTech and financial services and ensure consumers are benefiting from these emerging technologies:
<h5>Open Banking</h5>
There is great potential for open banking to further reduce costs for businesses and households. Government and regulatory action to extend the scope of Variable Recurring Payments or ‘sweeping’ (the automated movement of funds for a customer between two accounts in their name) could help, for example in retail payments, to reduce transaction costs and enable additional budgeting tools.
The Smart data provisions in the current Data Protection and Digital Information Bill build on the success of open banking in the UK, which has given rise to many new services that benefit consumers. The proposed powers to extend access to data could support the extension of open finance (e.g. to insurance) as well as enabling use of data in other sectors for financial applications (e.g. to support credit decisioning, anti-fraud and Environmental, Social and Governance ESG products). 
<h5>Digital ID</h5>
We strongly support the provisions in the Data Protection and Digital Information Bill for a regulatory framework for the provision of digital identity verification services in the UK and enabling public authorities to disclose personal information to trusted digital identity providers for the purpose of identity and eligibility verification. This will enable the introduction of digital ID schemes, which should create new opportunities for innovation, including easier customer take-on, addressing financial exclusion and providing greater security for existing and new products. Digital ID is also emerging as an important component of the future roll-out of a Central Bank Digital Currency, which is a critical component of positioning the UK as the world’s leading centre for digital finance. 
<h5>Tackling financial crime and fraud</h5>
Our members are very concerned about rising rates of online scams and fraud. For this reason they have been very supportive of the amendments which the Government itself tabled to the Online Safety Bill to make online platforms (such as search engines and social media) responsible for scams perpetrated via adverts on their sites. In parallel, HM Treasury has been advancing proposals for mandatory reimbursement by payment providers to victims of scams. 70% of authorised push payment scams originated on an online platform including fraudulent advertising through search engines and social media, and fake websites. 
If mandatory reimbursement is pursued and the Online Safety Bill provisions dropped, we face an inequitable position where payment providers, who put in place significant measures to combat fraud, bear the full financial cost of compensation but the platforms which facilitate the crimes through paid-for advertising bear no cost at all. We would therefore urge the Government to bring into law as quickly as possible the provisions which were added to the Online Safety Bill.
<h4>3. Make the UK the world-leading centre for digital finance, which will in turn cement the UK’s position as the preeminent centre for global finance</h4>
We are starting to see a new wave of innovation that will transform financial services, based on digital assets (including crypto or Distributed Ledger Technology but also encompassing other digital infrastructure). This is an opportunity to build on our UK FinTech success story of the last ten years by leading on this front to establish the UK as the world's leading financial centre, led by innovation in digital assets.
But there is a risk of falling behind if we don’t act quickly.
In terms of crypto-assets and related exchanges and infrastructure, the UK does not yet have any ‘unicorn’ companies, lagging behind the US (with nearly half of the fifty or more crypto unicorns globally). The US and Singapore - both with common law legal systems - are on the verge of leapfrogging us with regulatory frameworks for the new technology.
Previous Government plans for making the UK the best place to start and grow a crypto firm need to be expanded to form a more comprehensive and coherent strategy, with an actionable plan and timetable. This should embrace the aim of making the UK the world's leading centre for digital finance and digital-assets.
It requires urgent action on the immediate market litmus test of workable financial promotion rules through to a roadmap for digitalisation of capital markets and payments. 
<h4>4. Ensure the FinTech sector has access to the best talent and skills, from around the UK and around the globe</h4>
Fintech firms in the UK want to be able to grow homegrown talent and attract the very best talent from around the world. Roll-out of the Scale-Up Visa is an important milestone and it will be critical to review progress and assess whether it is achieving the desired outcomes and supporting scale up growth. 
Alongside this, continuing to grow apprenticeships that meet FinTech skills needs, better communicating Government skills support to startups and scaleups as well as working together with universities are crucial. 
Ensuring national connectivity, with an aim to highlighting the innovation centres and amplifying the great innovation work being done across the UK, is also core to delivering on this priority and developing a strong national pipeline of talent.
<h4>5. Unlock barriers to further domestic and global investment for the UK FinTech sector</h4>
We would encourage continued action to develop the UK listing environment, including digitisation of shareholding, implementing reforms of pre-emption rights along the lines called for in the Kalifa Review of FinTech (which Innovate Finance was pleased to serve as the secretariat for, alongside City of London) and the Austin Review and supporting the <a href="https://ccrwm04.na1.hubspotlinks.com/Ctc/2K+113/cCRWM04/VVJT3t8Pmt0nW2Zj1yz28hjBGW2dmkKk4NvY8sN5VHnSV5nKvJV3Zsc37CgKXJW1NX1qD3JZZB-W6LSr_673PQwfW2kQCQy63sWtzW2sk24V5DCj0NW5YT-S19jZzg7VdQgMn43FK8qW7kqyqf3g_ySnW4F3Vzz49Ts-6W1rqtsW6gDjZwW2xrdPF7lHfQvN2GvxM9qfh-WW8bHFjY1yfQDGW5-XFzM6sVnQ6W6tgFRl6RHh5BVhk9Sh8z-pS6N5mf8ggPGQflW8vLS_26F76n8W1Wm-2X28P57mW88YvDQ6vCPQ4W2j65xs5nJqsbW358Lzn3VdfQTW6wPWMQ750926W3_qLLJ2W4XWxW3Kw6QM1P6W-pW8HqSl263Rj3PW2wZftl8D041WW3K2tVG6W_KFKW7FwtkT6QBtGCW6ftfHJ75WZJ2VCq6NJ5HcSl_W8dQrTd3Hk-gZW7WSnD7701ywSW7Bx_hH68g0tMW3lF0X14zPrxGN87R6y4s8HzyN1sF63FkW2Qf37Hr1">independent Capital Markets Industry Taskforce</a>, led by the CEO of London Stock Exchange Julia Hoggett, which is looking at how markets can best fund scale ups. Fragmentation of the EU listings markets gives the LSE the potential to maintain its lead in Europe post-Brexit and attract critical overseas issuers.
Unlocking and encouraging further institutional investment in UK startups and scaleups can play a huge part in the UK investment environment, including MiFID reforms. The new Prime Minister has led the way in championing British business success in her ministerial career and we would love to see the UK Government adopt this approach by publicly engaging with and celebrating UK FinTech success stories, including investment successes, which will then be amplified by the media.
While our latest set of investment data shows a remarkable performance by the UK FinTech sector, the gender gap is widening, with a significant YoY drop in investment for female founders. Our ecosystem must work together to even the playing field and provide equal opportunities for females and for all underrepresented FinTech leaders. If we are to continue as a global industry leader, we need to facilitate growth in female-founded businesses and promote broader diversity and inclusion in FinTech.
<h4>6. Capitalise on the strength of the UK FinTech ecosystem to position the UK as the leading green finance centre</h4>
This digital future is also central to a market-led Net Zero transition. Green finance will be data driven and digitally enabled. This is a huge international opportunity for the UK economy, for investment and exports. FinTechs are already providing transformational Net Zero services to financial institutions in the US and elsewhere.
The financial system provides a market-based approach to tackling climate change and enabling a transition to a zero carbon economy. Green finance depends upon linking data (including emissions and alignment to low and no carbon targets) to finance in all capital and retail markets. 
The UK has world leading capability on the combination of data and finance. We therefore have the opportunity to turn our world-leading FinTech ecosystem into a world-leading centre for green finance. This can unlock the incentives for investors and asset managers to de-risk their portfolios and for consumers to also take positive action. UK FinTechs are offering Net Zero solutions for banks and asset managers and in B2B, B2C and RegTech (regulatory compliance).  
BEIS work on developing an updated Green Finance Strategy is a great opportunity to unleash the potential of UK FinTech and financial markets.