By Aisling Finn on Friday 26 February 2021
Following the publication of the long-awaited Kalifa Review, we caught up with industry leaders to see what they thought of the report.
The hotly-anticipated Kalifa review into the fintech sector was published this morning.
In the review, Ron Kalifa OBE laid out plans to help keep the UK as a world-leading fintech hub, including measures like a new visa route for overseas tech talent, a £1bn fintech growth fund, tighter crypto regulation and suggested steps towards achieving open finance.
But what exactly does the fintech industry think about the review? Here are the latest comments from some of fintechs biggest players in response to the report.
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 an 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.
Amidst the ongoing Brexit debate (City warned EU will do London no favours on financial services, January 26) and in light of February’s upcoming industry report by Ron Kalifa, the fintech sector must come together to lead the UK’s economic recovery. Working alongside other fintech leaders, it’s been a privilege to contribute to the independent Fintech Strategic Review, commissioned by HM Treasury and led by Ron. It’s shocking the elephant in the room with Brexit is never acknowledged – the market dropped from 720 million people to 60 million overnight and has cost all of us millions to set up mirrored infrastructure in Europe.
That said, we now need to re-adjust. The UK is still a great place to start a fintech and then grow globally, supported by the Department for International Trade. And London is the smart place to float a fintech due to the global investor base still in the City. We should draw parallels with Scandinavia, where companies know how to grow globally because the local market is so small. One thing the UK government must address is the potential for a persecutory tax environment that will discourage talent in the UK, much like Francois Hollande chased the French talent to London and Singapore. Avoid that, and I see cause for optimism.
The turbulence of the last year threw the importance of fintech into the spotlight when it comes to addressing consumer and business needs, with a number of fintechs proving to be invaluable partners for organisations seeking to respond with speed, agility and innovation.
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.
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.
Recommendations to boost national connectivity and growing fintech outside of London are critically important. As someone who grew up in the North and developed several regional offices during my career, I’ve seen firsthand the quality of talent up and down the country - and the prosperity a booming economy can bring. Investment into the regions - such as driving national coordination strategies through the Centre for Finance Innovation and Technology and encouraging each cluster to produce a three-year strategy - will be a key part of the post-Covid recovery. I’m hopeful these recommendations will empower entrepreneurs everywhere, creating a future world where the whole of the UK is seen to be a centre for fintech.
Maintaining the UK’s status as the global fintech hub relies heavily on access to talent and innovation. But it is also fuelled by record levels of investment into the sector. The steps suggested in the Review provide fintechs with greater access to capital and support, allowing them to continue leading the way in innovation. At the same time, it promotes a culture of serial investors that continue to see UK fintech as an attractive investment opportunity.
It’s also encouraging to see the Review emphasise the importance of further developing its global trade policy - with suggestions like driving international collaboration through the Centre for Finance, Innovation and Technology (CFIT), and launching an International Fintech Taskforce. For UK fintech to maintain its position as the world’s most important investment hub, British financial services firms must be allowed to continue trading with the EU with an equivalence deal. If this is not possible, it will be imperative for the government to negotiate attractive individual contracts with trading partners worldwide – opening up international trading and talent corridors to strengthen the industry’s hand outside of Europe.
The adoption of dual-class share structures is a bit of a storm in a teacup, and instead of allowing ‘dual-class structures’ to pull focus, we should instead be looking at ‘change of control’ rules, which are a prohibitive force when it comes to going public companies in the UK.
Whilst the adoption of ‘dual-class share structures’ has attracted considerable attention, in reality, the practice is few and far between. Most venture capital firms in the UK have sufficient leverage, and therefore ‘dual-class structures are uncommon. It’s unlikely that ‘dual-class structures’ will increase in prevalence, and will drive significant additional listings on the LSE.
Probably far more relevant is the take-over code rules on change of control, which makes special-purpose acquisition companies (SPACs) difficult to list in the UK. When a reverse takeover occurs in the UK, trading is automatically suspended in stock, which prevents SPACs from being a viable vehicle for promoters in the UK. This is a very real prohibitive factor when it comes to listing companies in the UK, and needs to change.
At present, hiring the best talent can be a costly and timing consuming process, so any additional simplification and cost reduction is enormously welcome. Similarly, improving access to a much deeper pool of talented engineers is also welcome. Zoom meetings and remote working haven’t changed the fact that London is a global financial centre, and therefore ‘regional clusters’ are unlikely to make a huge impact.
The idea of regional fintech clusters might be an attractive aspiration for politicians seeking to democratise access to financial services jobs, in reality, London is a global financial centre. Even though the pandemic has normalised remote working, London’s gravitational pull eclipses all other cities in the UK. Therefore, any specialisation is limited to servicing the needs of London, rather than being a specialist cluster in its own right.
Entrepreneurs across the whole UK fintech sector will welcome today’s report with open arms. These ideas and initiatives can breathe new life into our industry. They can set the scene for accelerated growth, keep businesses based in the UK, create new jobs and help people develop specialist skills.
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.
A flourishing fintech sector can address social policy issues too. Fintechs can help the financially excluded, low income and unbanked consumers to cross the digital divide and find new ways to manage their money – simply and safely. Therefore, Government and fintechs must work together to ensure the recommendations in today’s report also benefit the everyday consumer, and that people have the skills, confidence and understanding they need to unlock the opportunities of digital payments and financial management of their own affairs. Companies like Pockit are driving this inclusion – with credit score building, cashback schemes and by helping customers switch to Direct Debit and save on bills – but the sector needs a joined-up approach to really make a difference.
Augmentum has been a pioneer in opening up the fintech asset class to public market investors, allowing institutional investors alongside retail investors to get diversified exposure to this emerging sector.
We agree there is a need to encourage UK institutions, in particular pensions funds, to invest in fintech, one of the UK’s best-performing asset classes, and we welcome the report’s recommendations in this important area. Augmentum remains one of the few ways that public market investors can access fintech and we know from conversations with our current and prospective investors that there is considerable appetite amongst UK institutions to access opportunities in this fast-growing and innovative space. We believe there is significant opportunity and demand for a greater pool of capital flowing into fintech which in turn can only strengthen the UK tech ecosystem.
Despite Brexit and initiatives by European capitals to provide generous state funding mechanisms to dilute dependence on London and to grow their own tech ecosystems, we still see some of the best European Fintechs and their founders coming to the UK to innovate and to grow their businesses. Over half of Augmentum’s UK based portfolio companies have non-UK founders/CEOs, and we believe this trend will continue, especially if the right policy framework is introduced to ensure talent can still access the UK.