From cheerleading to sustainability: UK government boosts fintech

ifgs harriet baldwin

The talk around financial technology (fintech) coming from the UK government is moving from one of cheerleading for the sector to sustainability: how can the country maintain the momentum it has built up as a launch pad for financial tech companies?

According to Ernst and Young, the UK fintech sector now has a workforce of 61,000 and generated £6.6bn in revenue last year, putting it high on the government’s agenda for driving future economic growth.

Speaking at the Innovate Finance Global Summit (IFGS) at the Guildhall in London this week, the economic secretary to the Treasury, Harriet Baldwin said that the UK has built strong momentum, but can’t rest on its laurels and the government has an important part to play in driving future growth.

“This is a very strong start, but our ambitions are even greater,” said Baldwin. “We need to ensure that the UK continues to be the best place in the world to base a fintech company.”

Bridges, panels and hubs

As part of these ambitions, the government is announcing a set of measures to deliver on its commitments to fintech entrepreneurs. That includes a dedicated fintech panel to define and execute initiatives, such as the open banking standard and pensions dashboard that has been proposed.

There will also be a dedicated professional services hub to help young fintech companies source the legal and accounting services they need to build out their companies. Additional help will come from ‘fintech bridges’ set up with key international markets to help start-ups grow outside their home market, which the UK Trade and Investment (UKTI) department will support.

Baldwin also pointed to the need to help drive growth in regional hubs outside London by linking up with local academic institutions and industries, investing in research hubs or appointing more ambassadors, such as fintech envoy Eileen Burbidge.

An American venture capitalist living in London and partner at Passion Capital which supports early-stage ventures, Burbidge was appointed “special envoy” for fintech last July.

“The UK leads across a broad range of fintech specialisms – from digital currencies to alternative lending, e-commerce and many others,” said Baldwin. “There are few areas of fintech that the UK does not have an interest in. But in a globalised world, there can also be benefits to specialisation.

“With specialisation comes a concentration of knowledge, efficiencies, and a potential market edge. That is why I am keen to see the continued growth of regional fintech hubs around the UK.”

FCA sandbox

Meanwhile, sector watchdog the Financial Conduct Authority (FCA) is also moving to remove barriers to innovation, experimentation and collaboration in finance with the roll-out of its so-called regulatory sandbox in the UK. Announced toward the end of last year, the sandbox is a ‘safe space’ where start-ups can test out products, services and models without having to jump through all the normal hoops involved in regulatory compliance.

Speaking at the event, FCA director of strategy and competition Christopher Woolard said applications will open on May 9. Successful applicants will be able to test ideas without incurring the costs and consequences of going through the full regulatory process. Keen to reinforce its credentials as one of the world’s most progressive financial regulators, the FCA says its sandbox is the first of its kind globally.

“We asked ourselves how we as regulator should go about creating a sandbox where the industry gets the opportunity to test out and develop creative solutions, at the same time that there is very little public appetite for failure – especially in financial services,” said Woolard.

The idea is that start-ups shouldn’t have to incur significant costs before they even know if their idea will work. Time and money tend to be in short supply in a fledgling company and the FCA doesn’t want promising ideas to wither on the vine just because the process of regulatory approval takes so long. If the FCA can find a way to offer partial or “tailored” authorisation, such as building blocks, as they go along that could be a better way to help companies get off the ground.

“It would be regulation in proportion to the size and scale of an idea, that can grow as the business grows,” said Woolard. He added that the FCA has been considering how to deal with ideas that don’t fit within rules “many of which predate smartphones, let alone things like biometric authentication”. It is also looking at how to provide highly individualised guidance for teams.

Woolard stressed that the sandbox will be as much of an experiment for the FCA as for the companies inside it. Initially it will be open to two cohorts per year, as the regulator works out the best way to run the project.

“There will be some unchartered territory where it hard for us to say how to interpret existing rules,” he added. “We want to be able to give comfort to firms in sandbox that we accept unexpected issues may arise.

“The sandbox is a first for financial services regulation and we ourselves are experimenting and learning.”

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