Earlier this week, HM Treasury announced the relaunch of its independent Fintech Strategic Review (the Review). The Review, originally announced in March (but delayed due to Covid-19), will aim to identify key priority areas for focus by the industry, policymakers and regulators in order to support the continued growth and mainstream adoption of Fintech solutions in the UK. The Review will be led by Ron Kalifa OBE (the former CEO of Worldpay).
Scope of Review
The Review’s Terms of Reference set out its three main objectives: (i) to ensure Fintechs in the UK have the resources to grow, (ii) to create the right conditions for “continued widespread adoption of Fintech solutions”, and (iii) to maintain and advance the UK’s “global reputation for the innovation and transformation of financial services”.
The Review is expected to make recommendations to HMT in 2021 across five workstreams. The workstreams are broadly as follows:
- “Skills and Talent” – recommendations to build “a robust and diverse UK workforce” appropriate to support the Fintech sector, including “addressing barriers to attracting foreign talent”;
- “Investment” – recommendations “for diversifying the UK investment landscape” and to address “the challenges to attracting growth funding”;
- “National Connectivity” – recommendations to support “the growth of regional fintechs through improving intra-region connectivity” and “leveraging the strengths of other fintech hubs”;
- “Policy” – recommendations to support the “wider adoption of innovation”, including to enhance cooperation between Fintechs and financial institutions, and support competition; and
- “International Attractiveness and Competitiveness” – recommendations on “promoting UK solutions to overseas markets” and “promoting the UK as a key market to establish and grow a fintech company”.
Each workstream will make up to three recommendations and the Review will seek to submit its recommendations to HMT no later than six months following the start of the Review (likely at the start of 2021). HMT will publish a response once the Review has presented its recommendations.
The first meeting of the Review governance board took place on 20 July 2020 and was attended by John Glen, the Economic Secretary to the Treasury. Ron Kalifa as Chair of the Review will be supported by a secretariat led by Innovate Finance and the City of London Corporation.
Shortly before the Covid-19 pandemic, we predicted that the Fintech sector in the UK would move into a new stage of maturity in 2020 and 2021. The leading UK Fintech firms are now well-established, well-capitalised, and expanding globally. The sector is still attracting large amounts of new entrants and venture capital investment, but activity in the sector now includes increasing consolidation too – as firms combine and partner with each other to enter new markets, acquire market share, and deliver services efficiently.
As with every other sector, Covid-19 has had a significant operational impact on Fintech in the UK and the Review’s Terms of Reference articulate a need to enhance the operational resilience of UK Fintechs. This reflects a broader regulatory trend (see our blog post) and we expect regulatory policy (including in relation to operational resilience and managing technology-related risks) will be a key theme underlying many of the Review’s recommendations. The Review’s relaunch also comes at a time of continued regulatory focus in relation to the proper scope of regulation of Fintechs, cryptoassets and other solutions and technology, as well as the possible broader adoption of central bank digital currencies (see our blog post on some of these issues).
All that said, we view Fintech as (relatively) secure from the worst impacts of the pandemic. Its businesses tend to be agile and digitally native. For many sector participants (particularly in the payments sector), the pandemic has actually accelerated demand for digital/mobile services and broader digital transformation. As such, we think the Review has arrived at a fortuitous moment for the UK’s Fintech sector: as it matures and consolidates, and also as it rebounds and (in some cases) is accelerated by the effects of the pandemic.