There was a sense of reassurance for some in UK fintech when pictures of Liz Truss’s celebration party popped up on social media last week. Among the devotees, on the arm of the new PM, was the likeable City PR chief Iain Anderson, chair of the Fintech Strategy Group and a non-executive director of the industry body Innovate Finance.
While the pair are understood 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 allay concerns that spread in the wake of her victory.
Indeed, over the past two years, the sector and the political impetus behind it have become somewhat synonymous with Truss’s 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 sense – and it probably comes as no surprise – that the industry was really backing Rishi,” one senior industry source tells City A.M..
“I mean, he obviously commissioned the Kalifa review. He understands growth. He has that mindset.”
Perhaps understandably, there were worries that his loss would spell an end to fintech’s moment in the political sun. However, closer examination of Truss’s track record toward innovation and fintech is leading to some reconsideration, the source says.
As chief economic secretary to the Treasury, Truss kicked off the very first meeting of the Fintech Strategy Group and has vocally championed the potential of digital assets in the past, writing on twitter in 2018 that the UK should “welcome cryptocurrencies in a way that doesn’t constrain their potential”.
In language that has now become rather familiar, she added: “Liberate free enterprise areas by removing regulations that restrict prosperity.”
Truss has been hinting at a shakeup of the UK’s financial regulatory regime in a bid to shift growth and competition up the agenda, with a potential merger of the City watchdogs reportedly on the cards.
The focus on growth and speed will certainly be welcomed, although support for the latter move is less clear. In a manifesto for the new PM, fintech industry body Innovate Finance said that a “proactive regulatory regime which affords for greater innovation in the sector while protecting the consumer” should be a top priority, and its chief Janine Hirt tells City A.M. that speed of movement will be key.
“We want to ensure that our regulators are moving quickly at pace and are pro-innovation, because at the end of the day, it is these new entrants and news products that can benefit the consumers,” Hirt says.
“We look forward to the new PM continuing to champion the world-leading UK fintech sector, as she has done over the years, and keep up the current momentum by delivering across the areas needed for continued growth – including access to investment, talent and a pro-innovation regulator.”
Truss and co are looking to place greater emphasis on growth in rule-making to help boost innovation in sectors like fintech, and her government is pushing ahead with plans in the Financial Services and Markets Bill – largely drafted by Sunak’s Treasury – to grant government “call-in” powers to intervene in regulatory matters when it is deemed to be in the public interest.
But the overtures toward regulators have caused some concern in the City that independence and standards may be in jeopardy.
Senior figures are also casting doubt on whether there would be any support for the scale of shake-up mooted by the Truss camp during the campaign. The regulators have been seen as striking a good balance towards the sector for the most part, with the Financial Conduct Authority’s regulatory sandbox regime – which allows firms to test and tweak products in the market before full roll-out – lauded and copied in regions around the world.
Ron Kalifa, author of the Sunak-commissioned Kalifa Review of Fintech told this newspaper over the weekend that UK regulation “should be the friend of any fast-growth company”, but cautioned that “there is a fine line between throwing away the rule book and making sure that consumers are protected”.
Boost or bust?
Away from the regulatory detail, the focus on growth has been a cause for positivity from some fintech figures who were brought into the fold by Sunak and then-City minister John Glen to advise on fintech matters.
Romi Savova, chief of listed pensions fintech PensionBee, who met with the Treasury to help make the UK’s listing regime more fintech-friendly, said the new leadership may in fact provide a lift to the sector.
“I’m not too concerned about a loss of momentum for fintech,” she tells City A.M. “If anything, I would hope there may be an acceleration under their leadership because they have prioritised growth as an agenda item.”
Savova adds that she is also encouraged by a potential push towards more gender and racial diversity in the sector.
“I think that through both the composition of their government, and also some of the policies that they’re open to enacting like tax reforms on childcare, they could make a lot of difference for the inclusivity of the fintech sector,” she says.
Fintech is understandably taking a back seat as the weight of government is thrown behind tackling a looming recession, but there are obstacles too in front of both Truss and chancellor Kwasi Kwarteng.
Ron Kalifa tells City A.M. that while most of the recommendations of his review are “well in train and being delivered”, the Fintech growth Fund – designed to plug a £2bn funding gap in the UK – is yet to be finalised.
And the need to plug that gap has never been more stark. New figures today from KPMG showed a 65 per cent plunge in fintech investment in the past year as venture capital funding – so readily available amid historically low interest rates for the last decade – has begun to dry up.
Kalifa says there is “momentum being built” behind the fund, however, after reports in August that former Chancellor Philip Hammond had been lined up for an advisory role and Barclays, London Stock Exchange Group and Mastercard had been approached for potential funding.
A senior source close to fintech policymaking 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 is duplication of work on key policies,” the source said.
“Founders don’t want to to be talking to Whitehall – they want to be innovating and growing their business, so making government more efficient to help businesses is key.”
Kwarteng and Truss have shown intent in that regard, drawing accusations of an “ideological purge” for the immediate sacking of the seasoned permanent secretary to the Treasury Tom Scholar last week.
For the time being, fintechs may be encouraged by the bolshy but symbolic commitment to growth and disruption.
But as investment continues to dry up and the sector battles an economic downturn, a clamour for more concrete support may grow.