Incoming Finextra Contributor Lord Chris Holmes, Member of the UK House of Lords, recognises the role fintech will play into the future of UK financial services and is loudly championing its cause.

Finextra’s conversation with Holmes could not be more timely.

While Ron Kalifa OBE’s comprehensive review into Fintech in the UK was welcomed by the industry, with it came the sigh of exasperation, as until we see any of the recommendations actioned, they remain unattainable pipe dreams for the burgeoning sector.

Holmes is driven to ensure that the Government understands and turns all of FinTech’s potential into meaningful action.

 “Even before Covid or Brexit, it was clear that we had such an opportunity to really push forward across the fintech piece. Fintech is right there for us, for want of leadership, collaboration, focus, and the right regulatory, legislative and cultural environment.”

Holmes’ advocacy stretches back to the age of 14, when he lost his sight overnight. “While it was absolutely all the people around me who helped, it was technology that enabled me to go back to my mainstream school and carry on my studies with basic speech output software.”

“From that point I’ve believed that in reality all technology is assistive technology and if it’s not, what’s it even doing there?”

Bringing fintech into the Financial Services Bill

Holmes has used his platform to stir interest and gain traction around fintech in Westminster, specifically around the 11 amendments he proposed to the Financial Services Bill.

He believes the Bill is an opportunity to encourage the development of distributed ledger technology (DLT) or blockchain use cases, to ensure the use of AI in financial services is ethical and ‘unbiased’, to extend open finance beyond open banking and to implement the Kalifa Review’s recommendation to establish a ‘UK Centre for Applied Innovation in Financial Services.’

Holmes explains that while this “portfolio Bill” does a number of positive things and picks up on issues which ought to have been addressed in the past, it says very little around fintech’s challenges and the opportunity it presents.

“Whether that’s dematerialisation of securities, open finance, DLT and markets, AI in financial services, all of these issues and more need to be thought through, considered, and put into the right kind of regulatory framework. The question I asked [in the House of Lords] was if not this Financial Services Bill, then which Bill? If not now, then when?”

The question of when is essential according to Holmes, who believes that -especially on the question of promoting open finance-, the prize is reserved for the early adopters.

“If you can really go for open finance, for some of the opportunities with digital instruments you’re in an advantageous position and you get to be part of the early journey in terms of the issues that need to be resolved, the potential global standards that need to be brought to bear and if the UK is part of the standards discussion, then it gives us a real competitive advantage.

The “potent advantages” the UK presents such as the rule of law, culture, and language, make a compelling case for a strong open finance ecosystem he believes, “but we do need to crack on with it. We’ve seen what a success Open Banking has been, well that can be multiplied if we look across the whole of finance.”

Can the UK remain a fintech pioneer?

An example of this pioneering approach by the UK is the FCA’s regulatory sandbox. Holmes explains that the UK was on the front foot with the Sandbox, “it was a great initiative and has been replicated in over 50 jurisdictions around the world, but that was a while ago. What have we done since in terms of keeping the dynamic, flexible, fluid approach to innovation? Why haven’t we got, for example, a sandbox that is available to all commerce at all times, rather than just the first in class?”

This comment ties to another core recommendation in the Kalifa Review, that of a ‘Scalebox’ to 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.

On scale, Holmes comments that “every founder I have spoken to has two issues: they talk to me about funding at that stage and they talk to me about talent. We need a growthbox to really crack the scale-up challenge. Similarly, why wouldn’t we want to be first to establish significant experimentation with something like CBDC? Do we want to be waiting to see what the PBC [People’s Bank of China] or what Facebook’s Diem does? We can effectively be crypto-takers or makers of the standards and therefore makers of the market.”

Government action as priority

Of equal (or greater) importance to recognition of fintech’s pivotal role in the UK is government led action. Holmes was pleased that the Kalifa review was mentioned by Chancellor Rishi Sunak in the 2021 Budget, but “there wasn’t enough of a focus on fintech, in terms of the size of the opportunity and the pressing need for pace, we need so much more.”

Holmes states that there is so much offered in the Review which doesn’t need primary or secondary legislation and the government could action immediately. Also, even for the areas that do require primary legislation, Holmes comes back to his mantra of “if we’re not going to do it in this Financial Services Bill, then when are we going to do it?”

“It’s pretty clear there is not going to be a second Financial Services Bill in 2021, so do we wait until next year?”

To wait any longer would inevitably see the added complication of The Future Regulatory Framework (FRF) Review. The FRF Review will consider how the regulatory framework for financial services needs to adapt to and be fit for the future (especially in light of Brexit), and aims to achieve an agile, coherent approach to financial services regulation in the UK.

While Holmes sees the benefits of the FRF he questions how the timing would impact practical change: “When will we find the right regulatory framework to enable all of this progress, and crucially, the right, appropriate, proportionate, practical, day-in-day-out oversight, and accountability of this?

“As things are currently set out, the Financial Services Bill it is pretty much saying (in terms of scrutiny) ‘over to you, regulators’ and I do not think that’s the right approach to enable the right level of accountability to our regulators. I don’t think it will drive the level of innovation which we require, and it certainly says nothing about what it claims to be about regarding Brexit.”

A Supervisory Joint Committee?

Along with observation of these short comings, Holmes offers a series of suggestions to improve the thorny situation. Importantly, a key suggestion is a joint parliamentary committee to provide the appropriate, proportionate scrutiny of our financial services regulators.

His proposal: “Probably the best structure would be a joint committee of both houses. Those structures work incredibly well if we look at the Joint Committee on Human Rights, for example. Crucially, that committee must be allied to an expert group who are on this day-in-day-out.”

Holmes argues that a joint committee of both houses would reduce the political temperature, hopefully remove a focus on the trivial (which can occur), and offer a more consistent, structured approach to effecting change.

“It wouldn’t just be taking steps when there is an actual or perceived regulatory failure or lack of action. It must have day-in-day-out focus, a structure that would give the right level of scrutiny and oversight, the right accountability for regulators, the right input of experts to crunch through the levels of complexity that we know exist with these sorts of issues.”

On a similar note, in terms of establishing bodies capable of driving change, the Kalifa Review’s recommendation for the establishment of a Centre for Finance, Innovation and Technology (CFIT) is welcomed by Holmes, who, since 2015, has been calling for a fintech space where public sector policy problems meet private sectors potential solutions.

Whether it be answering knotty questions around Central Bank Digital Currencies (CBDCs), AI, transforming PSD2 or digital IDs, this centre would bring together the resource and intellect to resolve important questions.

“It must be a centre which can address the whole of the issues; it must reach right across Whitehall. My experience is that we’ve only ever had this succeed twice – the London Paralympics and the Covid vaccination program.”

He is emphatic that fintech needs a cross Whitehall approach, and as recommended in the Kalifa review, this centre should be championed by a Digital Economy Taskforce (DET) to drive momentum as “a dynamo, a real rocket, at the centre of government but crucially not trapped within a single department.”

Holmes argues that a new approach is necessary, not least, in order to get “around the sludge of the procurement process.”

Reflecting on the impressive, agile work carried out by fintechs at the beginning of the pandemic, Holmes notes that numerous firms came up with efficient and secure solutions for distribution of government grants for instance, but HMRC did not and could not engage with them effectively.

“Yes, it’s good that Starling got some of the action, but if we had just a little more engagement at that early stage, we wouldn’t now be facing hundreds of millions, or billions in fraud which is in the system as a result.”

Optimistic about the budget debates, Holmes encourages the view that the raison d’etre of financial services remain at the forefront of these discussions, “The purpose of financial services is to enable and unleash individual potential, SME potential, city, community, regional, national, global potential. That is where fintech can really supercharge that potential.”