Hailed as a brilliant opportunity to keep modernising the regulatory environment upon its release, the first 12 months following the Kalifa Review’s publication has seen mixed progress.

The Review outlined five core recommendations around which a roadmap would be built, these included policy and regulation; skills and talent; investment; international attractiveness and competitiveness; and national connectivity.

In anticipation of the Review’s first birthday, almost 70 Innovate Finance members including fintech founders and CEOs recently penned an open letter to the UK Government, calling for further progress in implementing the reforms advocated by the Kalifa Review.

Noting the positive momentum seen since the Review’s publication, the letter mentioned successes including the new industry-led Centre for Finance, Innovation and Technology (CFIT), regulatory initiatives such as the FCA’s sandbox and the Bank of England’s extensive work on digital currencies, the overhaul of the UK listings regime and the impending introduction of scale-up visas.

However, the letter goes on to outline a few areas which remain somewhat lacking.

While acknowledging progress has been made by government, regulators and industry, the group recommends that “rather than resting on our laurels, it is imperative that we continue to build on this momentum and work together to establish an environment in the UK that is even more supportive of and conducive to innovation in financial services.”

Policy and Regulation

To improve its policy and regulatory approach to fintech, the Kalifa Review proposed the establishment of a new digital finance package which would build a regulatory framework for emerging technology and the implementation of a ‘Scalebox.’ This would 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.

It also called for the introduction of a full UK crypto regulatory regime to strengthen the country’s global position in the space.

Wayne Johnson, CEO for Encompass Corporation, and one of the ‘fintech leaders’ to have signed the Innovate Finance letter says: “during the last two years, we have also seen the increasing emergence of cryptocurrency and blockchain technology as mainstream payments alternatives, with instances of these being used in connection with money laundering and other nefarious activity.”

Johnson argues that going forward, regulation must therefore address this pandemic-induced trend in financial activity, and adequately respond to new financial technology being deployed across the industry. Fortunately, he furthers, “the UK and London especially, has an innovative, world-leading FinTech community, and this should be capitalised upon to encourage a regulatory framework that both supports innovation and provides a secure environment to test and learn. We must work together to foster more conversations with financial crime and regulatory experts, while upskilling future generations so the UK can continue to be at the forefront of this innovation, while protecting against financial crime."

The review also stated that the government should “continue to progress Open Finance as a mandatory regime and in alignment with other Smart Data initiatives. Although some of our contributors wanted more concrete evidence of successes from Open Banking, the majority agreed that Open Finance is worth pursuing within the context of the wider Smart Data project.”

The topic is raised by Ralph Rogge, CEO and founder of fintech, Crezco, who argues that for any firm trying to “build the next Worldpay (or Stripe), it was comforting to read that Whitehall wasn’t solely interested in fisheries and immigration with the reveal of the Kalifa Report a year ago. The report isn’t revolutionary - it doesn’t need to be because our track-record in building a fintech ecosystem is strong - we must continue to innovate and evolve with progress, highlighting areas of focus of policy and regulation, skills and investment for the Government.”

“Arguably the foundations for a regulatory framework were placed long before the Kalifa report was published and the tangible actions deriving from this specific report are hard to locate."

Rogge adds that while there is currently lots of talk about Open Finance, those who are working in or with Open Banking firms understand the extent of the work that remains to be done. “Between the Financial Conduct Authority (FCA), the Competition and Markets Authority (CMA), the Payment System Regulator (PSR) and the Open Banking Implementation Entity (OBIE), it remains unclear how the original Open Banking mandate will continue to be regulated going forward and to what degree. There appears to be neither a carrot nor a stick holding the original CMA9 banks accountable.”

“We must not behave like impatient children wanting to start on new projects while leaving prior projects un-finished. Ideas are easy, execution is not. The Ron Kalifa report may be a great five-year strategy plan, but who is taking control now?"

Skills and Talent

Innovate Finance’s open letter underscored the Chancellor Rishi Sunak’s 2021 announcement that it would implement a scale up visa following consultations with the industry – its introduction in April 2022 is eagerly awaited.

Anders la Cour, CEO of Banking Circle Group comments that digital transformation in financial servcies is currently at a tipping point, with technology empowering banks, payments businesses and financial institutions all over the globe.

“In particular, the likes of Buy Now Pay Later, Request to Pay and using emerging technology such as AI are set to define the year ahead – it’s incredibly an exciting time to be in FinTech right now. That said, the industry is facing a massive skills gap. In fact, recent research found 100% of fintechs had a skills gap in their organisation, according to CIOs. Upskilling will be an important tool for futureproofing businesses and to ensure the UK stays at the top of its fintech game.” 

Last year, Mike Laven, CEO of Currencycloud foreshadowed concerns around skills shortages, stating that “while we welcome growing the pipeline of homegrown talent and introducing skilled visas under the Kalifa Review, it will come to nothing if we can’t have equivalency to talent and markets that are available on our doorstep in Europe and globally.”

This year, while he believes that it is progress made is encouraging, “policymakers cannot afford to be complacent and must be more assertive if they want the country to remain globally competitive within the fintech sector. What the UK fintech industry needs more than anything else is easy access to talent and global markets, and policymakers are yet to make satisfactory progress on either of these points.

“In terms of talent, the industry is still struggling to access the skills that it requires. While many industries are facing similar challenges, the sector’s demand for advanced technical skills coupled with the value it creates for the UK mean that getting leading fintech talent into the country should be an absolute priority.”

Laven concludes by saying that many “in the industry – myself included – also believe that the Kalifa Review’s initial recommendations did not go far enough. Implementing the report’s noble but modest proposals alone will not win the day; if the British government doesn’t start thinking bigger, it will start losing opportunities and growth to those who do.”

Daumantas Dvilinskas, CEO and co-founder of TransferGo, also notes that while the Kalifa Review led to positive change, the UK can still do more to safeguard its status as a fintech leader – particularly when it comes to attracting a diversity of talent. “Since the Kalifa Review was published one year ago, the UK fintech industry has seen lots of activity - a wealth of funding rounds, wave of IPO announcements, and many reports of huge valuations. There's no doubt either that the Review has led to positive output like the UK Government's support for a new industry-led Centre for Finance, Innovation and Technology (CFIT) and new FCA scaleboxes, but the UK can do more to safeguard its title as a global fintech leader.”

Dvilinskas also “eagerly awaits” details of the fast-track visa for scale-ups, noting that half (49%) of the UK’s fasted-growing start-ups have at least one immigrant co-founder.

“As a migrant founder myself supported by several employees from outside the UK – I know all too well the benefit of an international team. If the Government wants to make the UK a global innovation hub by 2035 it will be imperative to continue attracting overseas talent – not only to London but other parts of the UK as they too focus on levelling-up.”

Investment

The Innovate Finance letter cites good progress made by the government and regulators with regard to overhauling the UK listings regime to increase its attractiveness to companies from around the globe, and through the creation of a ‘golden share’ for founders and a reduction in the minimum free float requirement. It also makes mention of the R&D tax credits for innovation included in the Chancellor’s Budget, which will be extended to data and cloud computing to boost investment in fintech. The Budget also saw £160 million allocated for the British Business Bank to- co-invest with regional business angels in attempts to address the early growth funding gap.

Despite these successes, the industry also wants the Government to address the growth capital gap by shifting the mindset of institutional investors in the UK to take a longer-term view and focus on growth opportunities in Britain while encouraging larger UK institutions to invest more in advanced technology.

Anders la Cour, CEO of Banking Circle Group comments: “A year ago, the Kalifa report revealed that the UK was at risk of losing its trailblazing position in the FinTech world. Fast forward twelve months and the UK has held firmly onto its crown. Indeed, KPMG’s recent ‘Pulse of FinTech’ report showed investment topped an impressive £27.5bn. This is a massive win for not just the UK, but Europe and the rest of the world, as this sort of investment drives competition and innovation forward.”

Eric Huttman, CEO of MillTechFX states: “Financial technology has received record levels of funding. Fintech is no longer a subsidiary of financial services, but rather an omnipresent and essential component of the way we trade and do business [...] The one-year anniversary of the Kalifa Review, however, is a timely reminder and wake-up call for firms still beholden to outdated legacy processes. We must focus our efforts on using fintech to help develop the real economy. That starts with the treasurers and asset managers who can face huge operational inefficiencies with their FX setups which directly affect their bottom line."

International attractiveness and competitiveness

In efforts to strengthen the international operational support offered in the UK and targeted overseas markets, the Review recommended making “a big statement about the international openness of the UK in a post-Brexit environment.”

To do so, it proposed the delivery of an international action plan for fintech, driving international collaboration through the Centre for Finance, Innovation and Technology (CFIT), and by launching an international “Fintech Credential Portfolio” (FCP) - akin to a quality stamp - to bolster credibility perceptions in international markets.

The Chancellor announced he would support the creation of the CFIT in April 2021, committing to work with regional and national fintech bodies to make it a reality.

Innovate Finance notes that the Department for International Trade also announced a package of export support for the FinTech industry to boost trade, jobs and economic growth, including the FinTech Export Academy and FinTech Champions Scheme.

In Harry Weber-Brown, digital innovation director at TISA’s view: “The Kalifa Review set out to transform the UK fintech landscape in a post-Brexit environment. Our aim, and that of Ron Kalifa OBE, is to make the UK financial services industry the most innovative in the world, to enhance competition and therefore to improve consumer financial wellbeing. We therefore look forward to the Government implementing the proposals in the review.

“Going forward, it will be vital that the UK continues to work closely with the European financial services market, both on regulation and trading. However, with the Kalifa Review, the UK has a real opportunity to lead the development of seamless financial services infrastructure and build a world class digital economy,” Weber-Brown says.

He adds that “technologies developed by TISA that could be further empowered by the proposals in the Kalifa Review is the Digital ID Trust Framework. This will put the UK firmly at the forefront of the Digital Identification market, position the UK financial services sector as a leader in anti-money laundering technology and increase the speed of the industry's digital transformation. Initially, the scheme will be developed for UK market use and will be internationally operable.

“In addition, we have been working with third party providers to ensure our Open Savings, Investments & Pensions (OSIP) proposals enable the industry to go beyond Open Banking by providing standard and accessible APIs to accounts not currently required by regulation.

“And finally, the work we have been doing with our TISAtech ScaleUp Initiative will facilitate and accelerate powerful partnerships between our members and ensure the exciting scale up of FinTechs internationally. If we can act on Kalifa’s vision and implement his proposals into legislation and regulation, we will ensure the UK financial services industry becomes the foremost in quality, consumer experience and innovation in the world.”

National Connectivity

On its national connectivity ambitions to support and scale “regional specialisms” unique to the UK, especially significantly intellectual property currently being created in UK universities, the Kalifa Review proposed the delivery of a three-year strategy to nurture the nation’s top 10 fintech clusters, improved national coordination strategy led by the CFIT, and the growth of fintech clusters via accelerated development and investment in R&D.

Picking up on the sentiment of those who put forward their view for this article, it could be said that progress has been made. However, at this point, it is important to call out the conclusion of the Kalifa Review, and we encourage our readers to comment below and discuss how much progress has been made in their view.

“Technological change has arrived in financial services and with it, an abundance of threats and opportunities. Threats to the UK’s competitive position, but also opportunities to innovate and grow. Threats to consumers and labour markets, but also opportunities for job creation and supporting the development of a digitally capable citizenry. To succeed, our efforts must be comprehensive and collective.

“We must hold ourselves to account in delivering the strategy outlined in this proposal. One year from today, both the public and private sector must come back to report on the progress they have made to deliver the recommendations in this Review. The Government should consider appointing a fintech ‘business champion’, to support fintech and deliver this strategy.

“The time to act is now.”