Review to boost UK fintech sector

Our experts have their say on the government’s announcement of a review into the UK’s financial technology industry, launched to identify opportunities to support further growth in the sector.

It is hoped the review will identify areas of potential growth and to promote integration of new technologies across financial services. Although the review was announced as part of the March budget, it has taken on greater significance in light of the economic and practical impacts of COVID-19.

The recommendations from the review are expected to be presented to HM Treasury around January 2021. The review focuses on ensuring adequate incentives are in place to support growth and investment in this space. It remains to be seen what form this support will take, but nonetheless any additional help will be welcome news for founders. A recent survey released by Innovate Finance highlighted that many small Fintech companies have a cash runway of six months or less and, of the companies surveyed, 75% indicated they are concerned about their next fundraising round and 70% have had no access to private funding since the start of the lockdown.

Views from Shoosmiths

Partner James Klein

“Fintech is an industry worth championing. UK companies are market leaders here already (in particular for services relating to trade/market surveillance, conduct and culture monitoring, client-care and AI/machine learning). However, despite being at the forefront from a technology perspective, only a few UK Fintech companies have broken into the mainstream. Most are still early-stage start-ups, so the global institutional clients are either unaware of them or prefer larger/more established market participants. The recommendations coming from this review will hopefully provide these companies with a platform from which they can scale up and gain access to bigger-ticket customers.”

Partner Stephen Dawson

“It is comforting to see that the review also seeks to ensure that the regulatory framework is not left behind by technological developments. It is clear that more and more UK companies are entering a phase of maturity that requires further action to be taken to ensure that whilst entrepreneurs continue to establish and scale their businesses in their home market, they can also export their products and services internationally. Hopefully this review will lead to new or renewed regulation for certain component parts of fintech which have not seen as much time and regulatory attention in the past such as digital currencies and cryptoassets. We would hope the review takes onboard lessons learned by the FCA recently during its sandbox programmes and supervisory activities.”

Partner Luke Stubbs

“The sector is one in which the UK has a particular focus and expertise. In financial services in particular, the UK has some market leaders already - trade/market surveillance, non-market trade data, conduct and culture monitoring, trading and investing technology, client-care and AI/ML. The focus is welcome, as a lot of the firms in this sector are start-ups or less well-known and ultimately these firms need to grow and be championed in order for them to make the breakthrough into the global market. This means in practice making a breakthrough with global institutional clients which favour working with larger and longer-established vendors.”

Partner Sam Tyfield

“The initiative comes at an ideal time when the crossover between Fintech and traditional, regulated activity is growing. Hopefully this can take lessons learned (by the FCA during its sandbox programmes and supervisory activities) and improve on them. It is also at the time when the PRA and FCA is looking again at operational resilience of firms, especially using technology, and the FCA will be increasing its focus on the payments sector.

During recent months, alarm bells have been sounded (by the Bank of International Settlements and the Global FX Committee, among others) about the risks posed by the potential failure of one or more FX market participants or payments transferors – the CLS (whose very raison d’etre is to ameliorate settlement risk in FX markets), now handles only one-third of eligible transactions.

With the recent failure of Wirecard, issues at Travelex and regulatory pressure to ensure the decentralized global payment chain, it is at least helpful to have regulators and politicians aware of the challenges the sector faces (even if perhaps they do not have the solutions yet).”