On 26 February 2021, there was published the independent report on the UK fintech sector by Ron Kalifa OBE.

At the 2020 Budget, the Chancellor asked Mr Kalifa to conduct an independent review to identify priority areas to support the UK’s fintech sector. The review formally launched in July 2020 with objectives for supporting the growth and widespread adoption of UK fintech, and for maintaining the UK’s global fintech reputation.

The independent report notes that technological change has arrived in financial services and with it, an abundance of threats and opportunities. The FCA’s pro-competition mandate has helped support new fintech firms and ensure a more nurturing regulatory environment. In 2016, the FCA launched the world’s first regulatory “sandbox”, which was subsequently replicated abroad by regulators looking to follow the UK’s lead in innovation. Similarly, the Bank of England and the FCA’s ‘New Bank Start-up Unit’ provides additional support and advice for firms looking to gain a banking licence. This in turn is accelerating the digital transformation of banks, asset managers, and insurers, as they strive to meet changing consumer and business demands. This catalysed the UK into becoming the fintech hub of today, coupling it with the sophisticated financial services ecosystem of London.

Building on the UK’s strong current position in fintech the independent report sets out a five-point plan of recommendations covering:

• Policy and regulation – dynamic leadership that protects consumers yet nurtures fintech activity and encourages competition.
• Skills – ensuring fintech has sufficient supply of domestic and international talent and the means to train and upskill the current and future workforce.
• Investment – completing the funding ladder from start-ups right through to IPO.
• International – a targeted approach to exports and inward investment.
• National connectivity – leveraging the output of fintechs across the UK and facilitating connectivity amongst them.

In terms of policy and regulation the independent report proposes:

• The delivery of a digital finance package that creates a new regulatory framework for emerging technology. The UK must prioritise new areas for growth and cross-industry challenges such as financial inclusion, and adopt specific policy initiatives that will help create an enhanced environment for fintech, such as digital ID and data standards.
• The implementation of a “Scalebox” that supports firms focusing on scaling innovative technology. This would include enhancing the regulatory sandbox, making permanent the digital sandbox pilot, introducing measures to support partnering between incumbents and fintech and regtech firms, and providing additional support for regulated firms in the growth phase.
• The establishment of a Digital Economy Taskforce (DET). Multiple departments and regulators have important fintech competencies and functions. The DET would be responsible for collating this into a policy roadmap for tech and digital, in particular, the digital finance package. It would provide a ‘single customer view’ of the government’s regulatory strategy on tech and a single touchpoint for the private sector to engage.
• That fintech forms an integral part of trade policy. The UK must build upon early successes and ongoing industry engagement and further develop its global trade policy in relation to fintech, ensuring a coherent and consistent approach, as well as to secure commitments in its future trade agreements that would benefit fintech.

In addition, the independent report sets out a series of sub-recommendations for each of the above proposals. For example, in terms of promoting the digitalisation of financial services the independent report gives a number of examples including the development of a central bank digital currency (CBDC). It states that the consensus seems to be that delivering a wholesale CBDC would be the “easiest” option and offer a short-term win. A wholesale CBDC, in effect, already exists through central bank reserves. The advantages of a wholesale CBDC could include atomic settlement, leading to zero exposure risk as well as increased resilience and less system downtime. The independent report also states that the UK has the potential to be a leading global centre for the issuance, clearing, settlement, trading and exchange of crypto and digital assets. It adds that the UK should aim to be at least as broad in ambition as the EU’s Markets in Crypto-Assets (MiCA) proposal but should also consider whether it can develop a bespoke regime that is more innovation-driven.