Allowing fintech to flourish – lessons from the Kalifa Review
Fintech is one of the great UK success stories of recent times and it remains the sector responsible for the majority of the country’s “unicorns”. The number of deals in this sector may have dropped in 2022, but the latest data from Beauhurst shows that it is still the most popular sector for UK VCs. Despite the trials of some of the big name fintech companies that have listed in recent years, overall the sector is looking to continue to grow and diversify, and the latest Small Business Finance Market Report from the British Business Bank shows that lending to SMEs from challenger banks overtook high street banks for the first time.
Earlier this week saw the launch of the Centre for Finance, Innovation and Technology, which will lead the way in the creation financial innovation hubs across cities and leading universities across the UK. CFIT will work with government, the Bank of England and regulators to improve rulemaking in the sector, and will work with colleges and universities to give students, from diverse social backgrounds, the opportunity to participate in placements at the UK’s leading companies operating in the financial innovation sector. It was also announced that the centre would work on plans for a fintech growth fund, pointing to the “huge opportunity for UK” pension funds to be investing small amounts into some of these growth areas. This is a very encouraging development for the fintech sector, investors, and the UK as a whole.
CFIT is the latest proposal to be implemented from the Kalifa Review, which was launched back in the autumn of 2020. The BVCA worked alongside industry leaders like Anne Glover and member firms to feed into a thorough and well received set of recommendations. We are now two years on from the publication from the final report, and the outcomes and the proposals are still being built on. The industry can also look back further back to the FCA Regulatory Sandbox, which was another key success of building fintech in the UK, now entering its seventh year and is continuing to help new firms test innovative propositions in the market with real consumers.
The outcomes of the Review and the government’s overall approach to fintech is an example of policy making at its best, where a policy area is given time and proper consideration and time to help grow and support a key strategic area of the economy which builds on established strengths of the UK economy. If only it could always be this way. It is most frustrating when the approach is disjointed or where policy decisions are rushed and implemented badly.
The changes to the SME R&D tax credit regime announced in the Autumn Statement last year are a case in point. The understandable desire to rein in some of the more dubious R&D claims was hastily drafted without consultation with wider industry in a way that impacted the type of companies that the government wants to support as part of its “Science Superpower” agenda. The latest consultation on the changes acknowledges that further support should be provided to R&D intensive companies in life sciences & deeptech - but trying to correct mistakes in this manner is not exactly ideal.
Whatever the appeal of a quick fix, even when a government needs to plug holes in the nations finances, the Kalifa Review showed that the best way to implement policy is to be patient, think strategically, and work with a broad range of industry stakeholders. The current government and whoever wins the next election, will hopefully bear this in mind, especially when it comes to other strategic sectors and R&D policy more broadly.
Chris Elphick
VC Policy Manager, BVCA
