What can the Sunak-friendly fintech sector expect under Truss?

There was a sense of reassurance for some in UK fintech when pictures of Liz Truss’s celebration party appeared on social media last week. Among the devotees, on the arm of the new Prime Minister, was sympathetic City PR chief Iain Anderson, head of the Fintech Strategy Group and a non-executive director of industry body Innovate Finance.

Although the pair are believed to have been friends for decades, the proximity of a fintech figure to the Tory leader on her first day in office may have helped to quell concerns that spread in the wake of her victory.

Indeed, over the past two years, the sector and the political drive behind it have become somewhat synonymous with Truss’ defeated rival Rishi Sunak, who commissioned a landmark review of the sector and pushed ahead with plans to make the UK a global hub for crypto.

“There was a feeling – and it probably comes as no surprise – that the industry really supported Rishi,” says a senior industry source By AM..

“I mean, he obviously ordered the Kalifa review. He understands growth. He has that mindset.”

Perhaps understandably, there were concerns that his loss would mean an end to fintech’s moment in the political sun. However, closer examination of Truss’s track record against innovation and fintech leads to a certain reassessment, says the source.

As Chief Economic Secretary to the Treasury, Truss launched the very first meeting of the Fintech Strategy Group and has been vocal in championing the potential of digital assets of late, writing on Twitter in 2018 that the UK should “welcome cryptocurrencies in a way that does not limit their potential” .

In language that has now become quite familiar, she added: “Free up free enterprise zones by removing regulations that limit prosperity.”

Truss has hinted at a shake-up of Britain’s financial regulatory regime in a bid to move growth and competition up the agenda of City watchdogs, which is likely to be welcomed by many in fintech.

In a manifesto for the new prime minister, fintech industry body Innovate Finance said a “proactive regulatory regime that enables greater innovation in the sector while protecting the consumer” should be a top priority, with its chief Janine Hirt telling By AM. that movement speed will be key.

“We want to ensure that our regulators move quickly in step and are pro-innovation, because ultimately it is these new players and novel products that can benefit consumers,” says Hirt.

“We are very keen to see the Prime Minister push forward to ensure we take advantage of being a world leader on the regulatory front and retain that productivity.”

Truss and co. wants to place greater emphasis on growth in rulemaking to help boost innovation in sectors such as fintech, and her government is pushing ahead with plans in the Financial Services and Markets Bill – largely drawn up by Sunak’s finance minister – to give the government “summons” ” powers to intervene in regulatory matters when it is considered to be in the public interest.

The overtures to regulators have raised some concerns in the City that independence and standards may be at risk, with the Prudential Regulation Authority warning last week that regulatory independence was essential to “the pursuit of safety and soundness and financial stability”.

Ron Kalifa, author of the Sunak-commissioned Kalifa Review of Fintech told this newspaper at the weekend that UK regulation “should be the friend of any fast-growing company”, but warned that “there is a fine line between throwing away the rule book and making sure that consumers is protected”.

Boost or bust?

Regulatory details aside, the focus on growth has been a cause for positivity from some fintech figures brought into the fold by Sunak and then-city minister John Glen to advise on fintech issues.

Romi Savova, head of listed pensions fintech PensionBee, which met with the Treasury to help make the UK’s listing regime more fintech-friendly, said the new leadership could actually provide a boost to the sector.

“I’m not too worried about the loss of momentum for fintech,” she says By AM “If anything, I would hope there could be an acceleration under their leadership because they have prioritized growth as an item on the agenda.”

Savova adds that she is also encouraged by a potential push towards more gender and racial diversity in the sector.

“I think that both through the composition of their government, and also some of the policies they are open to passing like childcare tax reforms, they can make a big difference to the inclusion of the fintech sector,” she says.

Obstacles ahead

Fintech is understandably taking a backseat as the weight of government is thrown behind tackling a looming recession, but there are also obstacles ahead for both Truss and Chancellor Kwasi Kwarteng.

Ron Kalifa narrates By AM that while most of the recommendations in his review are “well under way and being delivered”, the Fintech growth Fund – designed to close a £2 billion funding gap in the UK – is not yet finalised.

And the need to close that gap has never been greater. New figures from KPMG today showed a 65 per cent drop in fintech investment over the past year as venture capital funding – so readily available amid historically low interest rates over the past decade – has begun to dry up.

Kalifa says momentum is building behind the fund, following reports in August that former chancellor Philip Hammond had been lined up for an advisory role and Barclays, the London Stock Exchange Group and Mastercard had been approached for potential funding.

A senior source close to fintech policy has also questioned whether the structure of Whitehall is conducive to innovation.

“Whitehall is not seamless in the way that it helps fast-growth companies. You talk to one department, then another, and you get passed around between departments and there’s duplication of important policies,” the source said.

“Entrepreneurs don’t want to talk to Whitehall – they want to innovate and grow their business, so making government more effective in helping businesses is key.”

Kwarteng and Truss have shown intent in that regard, drawing accusations of an “ideological purge” for the immediate sacking of experienced permanent secretary of state Tom Scholar last week.

For now, fintechs can be encouraged by the soft but symbolic commitment to growth and disruption.

But as investment continues to dry up and the sector battles an economic downturn, a call for more concrete support could grow.