Chancellor nails his colours to the fintech mast
Following up on his Budget promise and the release of a formal fintech review in February, the Chancellor unveiled his plans for the sector at UK Fintech Week 2021’s opening session on Monday.
Following the publication of Ron Khalifa’s fintech review in February, Chancellor Rishi Sunak set out his plans to boost the UK fintech sector in his opening keynote at Innovate Finance’s UK Fintech Week.
The initiatives build on promises made at this year’s Budget last month, most notably “scale-up” visa arrangements to make it easier for tech startups to recruit skilled labour from abroad.
Other initiatives included a new Financial Conduct Authority (FCA) digital infrastructure test bed (or “sandbox” to use the current Treasury buzzphrase), a centre for finance, innovation and technology (CFIT) and a taskforce to explore the possiblility of a digital centralised currency.
The announcement, echoed in a statement published on Gov.uk, follows calls from fintech leaders to put fintech at the forefront of Britain’s recovery plan.
The UK “cannot afford to rest on its laurels” regarding the fintech sector, said Monzo CEO TS Anil, Starling founder Anne Boden and Revolut founder Nik Storonsky in a letter to the Treasury supporting Khalifa’s review.
Sunak echoed government plans to “renew the UK’s position as the world’s pre-eminent financial centre”, citing as evidence of its strength the $4.1bn invested into UK fintech during 2020 and the 6m banking apps downloaded during the pandemic’s opening month last year.
While the four new initiatives were announced on Monday, few details were offered, indicating that a lot more detailed work may be needed before the fintech industry starts to make a tangible contribution to the post-pandemic financial recovery.
Treasury and Bank of England taskforce
A new task force between the Treasury and the Bank of England was the first initiative announced by the Chancellor. The group’s role will be to coordinate exploratory work on a potential central bank digital currency (CBDC).
Two new forums will also be established to bring technical experts, and stakeholders from financial institutions, business, commerce, civil society groups and consumers into the process.
“And the Bank of England has published a new account policy allowing new and innovative financial market infrastructure propositions”, was the only additional information offered in the official announcement.
“A CBDC would, if introduced – and that’s an important if – would be a new form of digital money issued by the bank and for use by households and businesses, existing alongside cash and bank deposits, rather than replacing them,” said Bank of England deputy governor Sir Dave Ramsden in his keynote speech in day two of Fintech Week.
Financial market infrastructure sandbox
Alongside the new taskforce, the government plans to set up a new financial market infrastructure sandbox for firms experimenting with new technologies, such as distributed ledger technologies (DLT). The new regime will be inspired by the FCA’s regulatory sandbox, which allows new entrants to the market to test products and services in a controlled environment.
Sunak added that the government would consult this summer on “ambitious” reforms to capital markets, including the removal of the double volume cap and share trading obligations.
The new sandbox and consultations will bolster the standards of UK’s regulation while improving competitiveness. The focus on regulatory standards is intended to support economic growth whilst making sure the rule book is “fair and proportionate”, the Treasury wrote.
In addition, the Bank of England launched a new “omnibus” account to allow access to innovative financial market infrastructure providers who can support faster, cheaper, 24-hour wholesale payments and settlements using central bank money.
“We are continuing to work to renew our RTGS service, 25 years old this week,” said Ramsden. Building on the functionality today, the new RTGS service will deliver a new range of features and capabilities for payments and settlements between financial institutions, “ensuring our payments architecture is fit for the future”.
“We’ve also enabled omnibus accounts to be opened in RTGS, these allow us to offer the benefits of settling in the ultimate risk-free asset – central bank money – to a wider range of payment system. And by so doing, we can help the industry to develop faster and cheaper high-value payments services.”
Government review response
As part of his keynote speech, Sunak revealed the government would be publishing plans regarding Lord Hill’s listing review. It also will be setting out a response to Ron Khalifa’s review into the fintech landscape in a detailed written statement to parliament shortly.
In the meantime, Sunak offered a brief glimpse of progress on the top three Khalifa review proposals.
Visa system reform
The Chancellor revealed that visa reform was already in process, but did not elaborate on how far along it was. The reform, he said, will “help firms like yours [talking to the fintech industry] compliment your domestic recruitment efforts with the best and most promising tech talent from around the world”.
The visa would award those qualifying a fast-track visa without sponsorship or third party endorsement.
However, this particular announcement was not received well by Starling Bank CEO and founder Anne Boden. “We don’t need to keep going on about visas,” said Boden in her fireside chat later that morning at UK Fintech Week. “It’s a question of actually taking the people on our doorstep in some cases that have fantastic qualifications and bringing them into organisations like ourselves and then taking our commitment very seriously.”
FCA regulatory scalebox
Second came the Financial Conduct Authority’s (FCA) decision to build a regulatory “scalebox”. This package of measures would give firms a “one-stop shop” for growth stage firms.
The Chancellor offered no further information on what the scalebox would entail, only stating: “If we want to support fintech businesses to scale up, we need to make sure the regulatory toolkit is there.”
His phrasing that the FCA had “decided to take forward the idea” perhaps suggests that this was not a new idea, but had been kicking around for some undisclosed time.
The Gov.uk announcement separately revealed that the second phase of the FCA’s digital sandbox would enable firms to test concepts that tackle sustainability and climate change-related challenges. This would push for support the transition to net-zero.
Centre for finance innovation and technology
For his piece de resistance, Sunak committed to working with the fintech community to “realise the idea” of a new, industry-led centre for finance innovation and technology (CFIT) to enhance fintech expertise across the UK’s nations and regions.
“This is an incredibly important moment for the UK’s financial services sector,” Sunk told the online fintech industry audience. “If we can capture the momentum, the excitement, the extraordinary potential of the technological revolution that all of you are leading, we can make real our vision of this country as a pre-eminent financial centre in the world.”