This week has been a busy one for financial services in the UK, with the publication of the first State of the Sector report and the Chancellor’s Mansion House Speech. In case you missed these, here is the lowdown on what was said and what it means for UK FinTech. 

The Mansion House Speech

This year current Chancellor Nadhim Zahawi addressed the challenges the world is facing in recovering from the Covid-19 pandemic, amid war and global economic uncertainty. He stressed that financial services will be key to recovery, and acknowledged the key part technology plays in the ecosystem. “From credit unions to credit brokers, from FinTech startups to high street banks… when we work together, in partnership, we can achieve a lot,” he commented. 

It was then time to outline how the Government intends to support the sector in doing just that, with the introduction of the Financial Services and Markets Bill. Calling this a “landmark piece of legislation,” the Chancellor outlined its features, which included: 

Repealing some aspects of EU law and bringing in UK financial regulation decided by the UK’s independent regulators. 

A new objective for the FCA and PRA as they take this on – to “facilitate growth and competitiveness”. Newly formalised, this is second only in priority to financial stability and consumer protection. 

More accountability for regulators as well as relationships with Government and stakeholders. 

Working to reinforce the UK’s position as a leading centre of technology, especially through the safe adoption of cryptoassets. 

Safeguarding access to cash for what it promises will be “generations”. 

Paybacks for victims of push payment scam being required by regulators. 

“In short”, said Zahawi, “the Bill delivers far-reaching reforms to our financial regulation, which we will deliver in partnership with industry. 

There were also some other important updates in the speech, including: 

The publication of a landmark review into secondary capital raising by Mark Austin, whose recommendations have been accepted in full by Government. 

A taskforce (recommended by Austin’s review) to modernise the shareholding framework, to be Chaired by Sir Douglas Flint. 

The completion of an independent panel on ring-fencing led by Keith Skeoch. 

A new independent Capital Markets Industry Taskforce, led by Julia Hoggett.

The State of the Sector

Written in response to Lord Hill’s UK Listing Review, this is a new annual report on the “attractiveness and international competitiveness” of UK financial services. Its purpose is to monitor key performance indicators  (KPIs) and “inform policymaking and debate”. 

The report notes the UK is an open and global financial hub. As a centre for international financial services, it has “strong market access, alignment and coherence with other jurisdictions” but needs to ensure it is “aligned with global standards” and seek “outcome based trading relationships with global markets”. 

It also comments on the importance of the integrated ecosystem in financial services that’s “driving growth across the UK”. This included both breadth and depth of expertise across all aspects of financial services, which helps access finance and create jobs. 

According to the report: “A common sense of purpose, shared across all parts of government and policymaking, regulators, trade associations and firms can strengthen the sector for years to come.”

The opportunity to be more ‘nimble’ was also mentioned, with innovation in regulatory frameworks a key part of the UK’s success, including the Future Regulator Framework Review and of course the new growth and competitiveness objective for the regulators.

As always, collaboration is key. This will be nothing new for our FinTech Alliance community, but the report concludes that “delivering on the government’s ambitions for the sector will require close collaboration – and constructive challenge – between industry, government, and the regulators.”

It adds: “There is a significant programme of work being taken forward by government and the regulators to realise the opportunities presented by EU Exit and build the coherent, agile and internationally-respected framework of financial regulation that is tailored for the UK’s markets”

The report notes that the new Financial Services and Markets Bill promises to “cut red tape to make the UK an even more attractive place to invest and do business, and harness the opportunities of innovative technologies in financial services – all while ensuring that high standards are maintained.” 

What does all this mean for FinTech?

The report notes that as a leading global FinTech hub, and updates us that in 2021, more than 3000 FinTechs were headquartered in the UK. This is second only to the US. Last year there were over 800 international FinTechs operating in the UK and 59% of all UK unicorns were FinTech companies. 

Private Equity and Venture Capital investment in the UK grew between 2020 and 2021, faster than US, Germany and France. However, the report warns, technology IPOs remain a problem in this market. “Scaling firms struggle to secure the funding they require in the UK via public markets. Despite London Stock Exchange growth in this area – 37 tech and consumer internet companies went public, raising £6.6bn in 2021 – Nasdaq and the New York Stock Exchange remain the preferred destinations for technology IPOs.”

The key strengths and opportunities relating to UK FinTech are:

Regulatory reform, tailored to specific needs of the UK market – which offers the opportunity for the UK to “take its own paths”. 

A clear commitment to set out how the FCA and PRA will deliver on their new growth and competitiveness secondary objectives and monitor progress. For example, they could make comparisons with regulators in other jurisdictions, such as the Monetary Authority of Singapore, and undertake more promotional activity. 

Work to improve the speed of FCA authorisation turnaround times – it’s noted this will require increased capacity, resourcing and also talent retention.

Proportional regulation should be enforced to the business’ size and activity, so that the restrictions and burdens imposed on a business are proportional to the benefits expected. It should be regularly reviewed to see if it is still appropriate. 

Embedding experts on innovation within regulatory teams so that there is greater understanding of the innovations being considered. 

The review will be a regular occurrence but it would not be unreasonable to expect FinTech (and its place in a collaborative financial services ecosystem) coming even further to the front and centre of both the Mansion House Speech and the State of the Sector report each year.