What progress has been made?

Kalifa said that while the UK fintech sector was being established, its future cannot be assured. Launched as part of former chancellor and now prime minister Rishi Sunak’s first budget, the review outlined five core recommendations, including policy and regulation; skills and talent; investment; international attractiveness and competitiveness; and national connectivity.

In 2022, ahead of the first birthday of the review, nearly 70 Innovate Finance members, including fintech founders and CEOs, wrote an open letter to the UK government, calling for further progress in implementing the reforms, because enough progress was not done.

In one year, the Kalifa Review had created the new Center for Finance, Innovation and Technology (CFIT), spearheaded regulatory initiatives such as the FCA’s sandbox and the Bank of England’s continued work on digital currencies, as well as the overhaul of the UK listing regime and the imminent introduction of scale-up visas .

However, the Innovate Finance members’ letter stated that: “rather than resting on our laurels, it is important 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.”

Two years later, amid inflation and a sharp decline in investment and job losses, what progress has been made?

Policy and regulation

The review proposed the implementation of a “Scalebox”, which would support companies focused on scaling innovative technology by improving the existing regulatory sandbox. Kalifa also discussed the creation of a Digital Economy Taskforce (DET) to bring together various functions of regulators related to fintech into a policy roadmap for a single view.

Scalebox and DET were last heard of in April 2021 at the time of the launch of the review, but Sunak has announced a newly created department for science, innovation and technology, bringing together research and funding from BEIS with digital policy-making from DCMS.

skills

The review recommends upgrading and retraining by ensuring access to education from high-quality institutions at reduced costs. A new visa stream was proposed with the aim of opening up access to international talent which currently represents around 42% of the UK fintech workforce.

To remain a global leader in fintech, the UK must strengthen its position on immigration or risk a significant shortage of human capital. In August 2022, it was announced that high-growth companies would be able to attract exceptional talent to the UK with new scale-up visas.

Unlike other sponsored visas, scale-up visas allow businesses to hire highly skilled people who will be given 2 years of leave to remain in the UK without requiring further sponsorship or permission beyond the first 6 months.

Investment

The review sought to establish a £1bn ‘Fintech Growth Fund’ drawn from institutional capital to address a £2bn gap in fintech growth capital. The intention with this was that it would be a market-led fund, financed by holders of domestic institutional capital and would use existing regulatory concessions that only applied to the fund itself.

In August 2022, it was revealed that Lord Hammond, the former chancellor, is among a number of heavyweights enlisted to back the new venture, tentatively named the Fintech Growth Fund. Other names cited include fintech veteran Al Lukies and Fintech Alliance’s Phil Vidler.

International

The review proposed the delivery of an international action plan for fintech, driving international cooperation through the Center for Finance, Innovation and Technology (CFIT), and by launching an international “Fintech Credential Portfolio” (FCP) – similar to a seal of quality – to strengthen credibility perceptions in international markets.

This month, CFIT appointed Ezechi Britton as its first executive director. CFIT’s core objective is to bring together time-bound ‘coalitions’ of experts to address obstacles to growth in the fintech sector; and to support the creation of high-income, technology-based employment across the country; businesses achieving global scale; and improve access for citizens and small businesses to financial services.

National connection

The review proposed the delivery of a three-year strategy to nurture the country’s top 10 fintech clusters, improved national coordination strategy led by CFIT, and the growth of fintech clusters via accelerated development and investment in R&D.

Innovate Finance, FinTech Scotland and FinTech North have created a national network that will encourage innovators up and down the country to connect and form more fintech hubs and centers of excellence.

The FinTech National Network intends to foster collaboration between the hubs and provide valuable connections to amplify their collective message. The network will focus on mutually beneficial initiatives, such as skills and talent, capital and investment and diversity, and seek to connect respective FinTech ecosystems across the UK, as well as to international markets.

To mark the second anniversary of the Kalifa Review, Yoko Spirig, co-founder and CEO of Ledgy, said: “The Kalifa Review was implemented to encourage innovation and extend the UK’s competitive edge against other leading fintech hubs. Over the past few years, the UK has maintained its position as a world-leading fintech innovation centre, with investment in the sector outstripping other European markets.

“But several components of the Kalifa Review have not been delivered. The London Stock Exchange is not yet seen as a top destination for tech listings and the UK still lacks a fully operational crypto regulatory regime as recommended by Kalifa. Other fintech hubs such as Berlin and Paris are building talent and investment capacity all the time, so Britain cannot be complacent.

“As a scaling Swiss fintech, we decided to open a London office last year because we believe the UK is the deepest and most sophisticated market outside the US. But the recently announced European Tech Champions initiative also highlights that the continent is doubling down on technology investment in a bid to cement Europe’s position as a start-up tech hub. Against this backdrop, it is vital that the UK government continues to support the fintech sector, encourage balanced risk-taking and drive innovation, if it is to stay ahead of its European rivals.”

Eric Huttman, CEO of MillTechFX, said: “Since the release of the Kalifa review, the overall macro environment in which fintech operates has been dominated by increased volatility, higher interest rates and higher inflation. While the uncertainty that has come from this macro backdrop has been difficult to manage, it has also provided opportunities for fintechs to solve real problems and deliver significant efficiency gains and cost savings to those who really need it, such as firms that rely on legacy suppliers and outdated technology.

“Many of the recommendations in the Kalifa Review helped to focus fintech in the UK and build resilience which has been essential during this tough period. Momentum has not abated and it is important that the fintech community continues to work together to drive the industry forward and build trust to increase adoption among businesses and consumers who rely on legacy processes and suppliers.”

Laurent Descout, CEO and co-founder of Neo added: “The last 12 months have been challenging for fintechs globally, but London has largely weathered the storm. While overall fintech investment fell by 30% over the past year, it fell by just 8% in the UK, underscoring its resilience as a fintech hub.

“As we approach Kalifa Review’s second anniversary, it is clear that the foundations laid to date have helped London maintain its healthy competitive edge and we expect digital adoption to continue to drive growth in many areas, including the payments market.”