Regulatory barriers and funding issues put the UK’s Fintech stature at risk

The UK has produced some of the world’s most successful and innovative fintech companies and has long been hailed as a leading global financial technology hub. But there are growing concerns that the UK is losing its fintech edge.

This week was the last launch Fintech founders Summer survey – an annual series that gauges the views of more than 300 founders across the UK fintech sector – which revealed overwhelming pessimism about the economic outlook and falling confidence in the UK fintech scene.

Since the last survey, there has been a significant drop in the number of entrepreneurs who believe that the UK is currently a world leader in fintech – from 56 per cent agreeing last year to 38 per cent this year.

87 per cent of entrepreneurs said they were either not very, or not at all, confident about the outlook for the UK economy over the next 12 months.

Financing

Access to finance remains the most cited barrier for entrepreneurs looking to grow their company.

In the first half of 2022, UK fintech investment fell to $9.6 billion, nearly tripling from $27.8 billion in the same period in 2021, according to KPMG‘s Pulse of Fintecha semi-annual report on fintech investment trends.

A number of investigated founders have called for the government under the new prime minister Liz Trussto improve access to grants and funding, particularly for early stage and growth stage fintechs, with growth capital being made available either directly or through organizations that British Business Bank (BBB).

Regulation concerns

Another common frustration raised by founders in the Fintech Founders survey is the fact that “regulators remain unresponsive to the challenges facing fast-growing technology companies”. Almost a third (30 percent) of founders said regulation hinders further growth. While more than a quarter of the founders (25.9 per cent) called for better resources for Financial Conduct Authority (FCA).

A number of founders feel that the FCA is “understaffed and … slow”, while one respondent said that “better resourcing is needed for the FCA to reduce waiting times for applications for permits”.

This is reflected by the think tank Westminster Parliament Street, which warned this week that the UK’s “overly complex regulatory environment” has stifled the ability of financial services firms to gain a competitive edge.

Managing Director of Parliament Street Patrick Sullivan said: “The financial services industry is the lifeblood of the UK economy and we cannot continue to allow excessive paperwork and compliance rules to stifle growth.”

Fintech entrepreneur Khalid Talukderco-founder of a specialist in currency markets DKK Partners, shares Sullivan’s concerns. He suggests that the constraints of the 2008 global financial crisis have kept “the city of London on a leash for far too long”.

Says Talukder: “Overwhelming amounts of regulation and bureaucracy have effectively chloroformed entrepreneurs and ambitious financial services firms, while rival cities have been left free to expand and grow without interference.”

Their comments follow the Prime Minister’s announcement that she planned to reform regulations so that “when businesses set up, they don’t get hit with mountains of red tape, they can continue to grow the country”.

Considered approach

But, Daniel Laynefounder and CEO of fintech QV systemssays changes to regulation should be “proportionate and considered” to avoid unintended damage to the long-term future of the financial services industry.

“It is important to recognize that regulation plays a critical role in protecting consumers and businesses from bad practices such as mis-selling, data loss and fraud,” he said. “While proposals to roll back some of these policies to free up the city and drive economic growth are admirable, great care must be taken to mitigate any negative issues that may arise from these measures.”