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The Kalifa Review’s five-point plan to bolster UK Fintech

The Kalifa Review’s five-point plan to bolster UK Fintech

The long awaited Kalifa Review of UK Fintech has been released, outlining a comprehensive plan to support and bolster the sector’s significant presence across the globe. Led by Ron Kalifa OBE, the in-depth review was launched almost a year ago as a component of Rishi Sunak’s first budget.

The report warns that “the trajectory of UK fintech is at an inflection point of opportunity - and risk. While the UK’s position is well established, its future is not assured.”

Citing competition, Brexit, and Covid-19 as underlying threats to the strength of fintech in the UK, the report identifies a five-point plan of recommendations to deliver a “prize” of job growth, trade, and inclusion.

On the announcement of the Review, Nik Storonsky, co-founder and CEO, Revolut states: “as we start 2021, facing economic challenges across the globe, it is essential to preserve and strengthen the UK’s position as the first choice to launch and grow a fintech business.

“I welcome the Fintech Strategic Review and the Government's commitment to ensuring that the UK remains a world leader in innovation and growth. As Revolut’s founder I know the importance of the UK's commitment to innovation and to being the best place to start and scale a fintech. I hope the Review gives us the pathway to ensuring that the UK retains this leadership.”

The five core recommendations of Kalifa’s strategy and delivery model are as follows:

  1. Policy and Regulation
  2. Skills
  3. Investment
  4. International
  5. National Connectivity

1. Policy and Regulation

To improve its policy and regulatory approach to fintech, the Review proposes the establishment of a new digital finance package which would build a regulatory framework for emerging technology and the implementation of a “Scalebox.” This would support firms focused on scaling innovative technology by enhancing the existing regulatory sandbox, making permanent the digital sandbox pilot and supporting partnerships between incumbents and fintech or regtech firms.

Kalifa proposes the founding of a Digital Economy Taskforce (DET) to collate various functions of regulators related to fintech into a policy roadmap for a “single customer view” of the government’s regulatory strategy.

Railsbank CEO Nigel Verdon comments: “It’s important to emphasise the Review is not simply about a set of individual recommendations, but a wider strategy for the sector with a delivery model. We’re not asking for the government to do everything, but rather a 80/20 rule - with main activity driven through the private sector and the government then asked to support and convene activity to enable the delivery of that strategy.”

Charles McManus, CEO, ClearBank adds: “As fintech comes of age, the industry and its regulators must work hand in hand to ensure regulation can move at the speed of technology and fortify not just fintech’s future but UK Plc’s too.

"Banks and fintechs have never been under more pressure to demonstrate that the new technologies and business models aren’t just effective at improving the customer experience, they can improve operational resilience and financial protection as well. Innovate Finance’s fintech review will underpin the future growth, sustainability and prosperity of the sector across the UK, helping move the needle where it’s needed.”

Kristo Käärmann, co-founder and CEO at TransferWise believes the review “is a brilliant opportunity to keep modernising the regulatory environment. This should lead to even more competitive products and better services for consumers, both here in the UK and beyond the borders.”

2. Skills

To capitalise on the fintech talent pool already present in the UK, the Review recommends the upskilling and retraining of adults by ensuring access to education from high-quality institutions at lowered costs. This is recommended in addition to a new visa Stream which would open up access to international talent which currently represents c.42% of UK fintech employees. the report argues that in order to remain a lobal leader in fintech, the UK must strengthen its position on immigration or risk a significant shortage in human capital.

Tom Graham, managing director in banking at Accenture UK explains that “empowering a diverse domestic and international talent base, enabled with the skillset needed to deliver on the promise, will future-proof our unique ecosystem and ensure the UK’s leading position in financial services is not compromised.”

Mike Laven, CEO of Currencycloud furthers that “while we welcome growing the pipeline of homegrown talent and introducing skilled visas under the Kalifa Review, it will come to nothing if we can’t have equivalency to talent and markets that are available on our doorstep in Europe and globally.”

3. Investment

Kalifa’s Review seeks to establish a £1 billion “Fintech Growth Fund” pulled from institutional capital to address a £2 billion fintech growth capital funding gap. The report explains this would be a market-led fund, funded by holders of domestic institutional capital and would (where feasible) utilise exiting regulatory concessions applicable only to the fund itself.

Stating that while domestic institutional investors may eventually create a fund directed at fintech, it may be too little too late to support the cohort of growth companies that need private funding now in order to scale and expand internationally.

It observes that “the opportunity therefore exists for the government to use its influence and convening power to support the concept of a domestically funded growth capital investment vehicle focused on fintech.”

In conjunction, the expansion of R&D tax credits, Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT) is called for to “level the playing field for fintechs relative to other technology companies.”

Improvement of the listing environment is also being eyed, with a free float reduction, dual class shares and the relaxation of pre-emption rights on the table.

BlackRock’s head of UK, Sarah Melvin, states that “fintech has played a crucial role in the UK becoming a global leader in Financial Services over the last decade. For the UK’s financial services industry to continue to thrive, it is important that we are a destination for high growth financial technology companies by offering the opportunity to access capital and to build scale in the UK and beyond.”

Founder and CEO of SFC Capital, Stephen Page states: “I believe there’s a further step to be made in simplifying the rules around EIS, which in turn could help unlock huge amounts of potential investment in high-growth companies. These changes should include an increase to the limit for the Seed investment stage (SIES) from £150,000 to £250,000, and to change the current restrictions on businesses using the EIS and SEIS schemes from 'the age of the business' to 'the size of the business'.”

4. International

Seeking to strengthen the international operational support offered in the UK and targeted overseas markets, the Review recommends making “a big statement about the international openness of the UK in a post-Brexit environment.”

To do so, it proposes delivery of an international action plan for fintech, driving international collaboration through the Centre for Finance, Innovation and Technology (CFIT), and by launching an international “Fintech Credential Portfolio” (FCP) - akin to a quality stamp - to bolster credibility perceptions in international markets.

Virraj Jatania, CEO and founder of Pockit explains that “the fintech sector is a key growth engine of the UK economy, and can be a centrepiece of our Covid-19 recovery. But for the sector to achieve its potential we need to roll out the welcome mat to fintech talent from across the globe and to improve access to investment. This needs to happen now. Today’s proposals must not become lodged in the machinery of government.”

5. National Connectivity

To support and scale “regional specialisms” unique to the UK, especially significantly intellectual property currently being created in UK universities, the Review proposes the delivery of a three-year strategy to nurture the nation’s top 10 fintech clusters, improved national coordination strategy led by the CFIT, and the growth of fintech clusters via accelerated development and investment in R&D.

Tom Graham, managing director in banking at Accenture UK states: “the UK has had world-leading success at building clusters of fintechs across the country, with evidence that the talent spilling out of them sparks the next wave of ideas. This review is a welcome next step in super-charging this flywheel with additional investment and will have disproportionate benefits to the regional and national economy.

Comments: (3)

Jeremy Light
Jeremy Light - Fourdotzero - London 26 February, 2021, 12:502 likes 2 likes

useful report, three observations:

1. the report talks about "aspects of fintech regulation may require adjustment" - much, much more ambition is needed, i.e. full regulatory reinvention. Take advantage of emerging technologies to do away with huge frictions in e.g. KYC and AML by approaching them very differently with better outcomes, using zero knowledge proofs, homomorphic encryption etc to shift financial crime compliance from an individual entity to collective responsibility, and with explicit safeguards to protect individual privacy and prevent government and big tech surveillance. The Alliance for Innovative Regulation (AIR) has some great ideas and principles for regulatory reivention to consider. As an example, cross-border micropayments are potentially transformational but are impractical when burdened with the same compliance requirements as £1m payments (as low value remittance payments have long suffered) 

2. the CBDC piece needs to move beyond the inward looking central bank lens into how digital sterling can create a new ecosystem of open finance innovation, with programmable money and new digital financial services outside of the traditional banking system - this is where the true benefit of digital sterling lies 

3. the interoperability of a retail CBDC is important, but more important is the holistic co-existence of an open finance system based on digital sterling, the DeFi open finance system already emerging in non-sterling digital assets, and the existing financial system (where most of Fintech outside of crypto currently operates) 

Sang Nkhwazi
Sang Nkhwazi - Sanrixa Ltd - Manchester 28 February, 2021, 07:08Be the first to give this comment the thumbs up 0 likes

Interesting. Hopefully, the review will lead to some positive changes in the sector.

A Finextra member
A Finextra member 01 March, 2021, 10:48Be the first to give this comment the thumbs up 0 likes

One of the major issues one can be critical of in the UK is how slow the regulator is currently and has been for many months. New emoney, crypto and payment firms submit applications and by the time the FCA even look at the application 3 or 4 months can pass.  This feckless regulator is costing businesses and HMRC billions,  and none of these civil servants give a toss with their cushy flexible roles from which they know they can never be fired....