What we can expect from Treasury fintech review
Richard Sergeant shares his predictions for the government’s fintech review, due to deliver its recommendations early January in time for a potential 2021 budget.
The government’s fintech review, announced in July, has to confront a vast array of activities covered by the term of fintech – from major infrastructure to smartphone apps for consumers. Accountancy represents a modest subset of fintech, so it’s unlikely to be a prominent component, but each of the areas under review will still have a significant bearing on the profession and its clients.
Skills and talent
Tech skills are always in demand so we’re not expecting the findings to say anything new. What would be welcome, however, was more of the “fin” to accompany the “tech”.
Although products and services will often boil down to having the technical expertise in place, the accounting world can occasionally expose how distant techies and visionary entrepreneurs can be from the challenges faced by businesses (and accountants). Promoting financial and business experience as a core talent within the fintech sector is a good way to ensure products have more accounting and finance smarts baked in.
Capital funding and investment
Given the state of the public finances, the fintech review will probably focus on investment from the usual private sources. Providing additional incentives for entrepreneurs does not seem to be on the government’s agenda, so any recommendations are likely to focus on ways to attract even greater sums via private equity, venture capital, angel investors and more traditional sources. Task forces, industry lobby groups and specialist ambassadors are sure to feature in the proposals, but a focus on eventual investor returns means a lot of the recommendations will still to come back to tax.
Encouraging research and development is essential, especially if there is to be more product choice for SMEs and the self-employed. Cloud ecosystems are so omnipresent in the accounting world, that they are likely to be called into play with initiatives targeting innovations in the use of open banking and investment data to improve financial planning, reporting and compliance.
National connectivity and fintech hubs
It’s all well and good if you live in the city (not on every street I will testify), but there’s no point being digital if you can’t get a mobile signal let alone superfast broadband. The review is an opportunity to keep the pressure up for digital infrastructure improvements. If fintech is going to be a high opportunity area of the economy, you have to ensure people can also use it.
Connectivity and regional fintech hubs, however, involve creating the right environment to allow these complex codependent services to work with each other. We’ve got good form in looking at ways we can make this happen already, not least with the defacto fintech trade body Innovate Finance and its Fintech National Network.
Will creating specific fintech hubs be a good idea? Quite possibly. And anything to reduce the focus on London is a positive - not least in terms of access to skills, reducing expense, and also opening the sector up to local wider expertise.
Again it would be good to see more financial expertise (outside of banks and insurance businesses) coming into play - even formal panels of accountants, FDs and business owners who can provide proving grounds for new products.
Policy and regulation
This is the big one. A recent Australian Senate Inquiry into fintech put particular emphasis on regulatory change and the required oversight; the same would surely apply to the UK.
I have my doubts as to whether many of the major regulators are going to be fit for purpose before too long. Open banking provided enough headaches, as did GDPR, but the desire to open up more financial data is bound to expose the inadequacy of regulation primarily designed for a non-digital world.
Insurance, investment, pension, privacy, banking, accounting, payments and of course tax are easier to police when the demarcations are clear. But what about when they start to interact with each other? What will it mean if accounting software starts to make recommendations around financial products? Will accountants be seen as part of the formal advisory chain if they introduce and manage the software subscription?
This is certainly an opportunity to reduce both administration and cost, while at the same time reshaping policy and regulation to create a better playing field for all concerned. It’s also likely to take a long time. Changes in regulation are a primary driver of innovation and adoption in the world of accounting and finance, so action in this area will hold the key to unlocking the whole shebang.
The UK has good form here already, although accelerating this will depend on all the other elements coming together. Cynics may see this as a cosmetic project to boost post-Brexit planning. Regardless of your political views, we are predominantly a services-based economy and fintech fits that profile. Attracting talent (while limiting immigration), providing incentives for funding (when the Treasury might not have the leeway) and creating an ideal regulatory environment (see above) may all be part of the mix. But this is an area where we should be thinking about attracting businesses to set up in the UK, rather than just export. Antipodean and US software within the UK accounting market has proven that imported fintech can be a welcome addition that delivers some significant kicks to incumbents.
There’s no doubt the government sees strategic advantage in maintaining the UK as a global leader in fintech, and it’s inevitable that the report will underline this.
With the increased level of digital reporting coming in the shape of MTD, ensuring businesses get their hands on the right technology and that their advisers are taken seriously should be an important element in the review’s final recommendations. At the moment it’s hard to see that this will be a priority.