What Has Changed In The Two Years Since The Kalifa Review?

Ron Kalifa OBE’s 2021 fintech study provided a comprehensive plan to strengthen the UK sector’s global supremacy at an inflection point between opportunity and risk for the industry.

Kalifa pointed out that, even though the UK fintech sector is well-established, its future is uncertain. As part of former Chancellor and now Prime Minister Rishi Sunak’s inaugural budget, the Review made five key recommendations: policy and regulation; skills and talent; investment; international attractiveness and competitiveness; and national connectedness.

Before the Review’s first birthday in 2022, nearly 70 members of Innovate Finance, including fintech founders and CEOs, wrote an open letter to the UK Government asking for more progress in putting the reforms into place because not enough had been done.

In one year, the Kalifa Review set up the new Centre for Finance, Innovation, and Technology (CFIT), led regulatory initiatives like the FCA’s sandbox and the Bank of England’s continued work on digital currencies, reformed the UK’s listings regime, and is about to introduce scale-up visas.

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

What kind of progress has been made in the past two years, with inflation, a sharp drop in investment, and job losses?

Policies and Rules

The Review suggested putting in place a “Scalebox,” which would help companies that want to scale up new technologies by making the regulatory sandbox better. Kalifa also talked about the creation of a Digital Economy Taskforce (DET) to put all of the functions of regulators that have to do with fintech into a single policy roadmap.

The last time anyone heard about the Scalebox and the DET was in April 2021, when the Review was launched. Since then, Sunak has announced a new Department for Science, Innovation, and Technology, which will combine research and funding from BEIS with digital policymaking from DCMS.

Skills

The Review suggests that people get better skills and retrain by making sure they can go to high-quality schools at lower costs. A new visa stream was suggested as a way to make it easier to hire international workers, who make up about 42% of the UK’s fintech workforce.

To keep being a world leader in fintech, the UK needs to improve its position on immigration. If it doesn’t, it risks having a serious lack of human capital. With the new Scale-up visa, which was announced in August 2022, high-growth companies will be able to bring the best people to the UK.

Unlike other sponsored visas, the Scale-up visa lets businesses hire highly skilled people who can stay in the UK for 2 years without needing sponsorship or permission after the first 6 months.

Investment

The Review tried to set up a £1 billion “Fintech Growth Fund” made up of institutional capital to fill a $2 billion gap in funding for fintech growth capital. It would be a market-led fund funded by domestic institutional capital and use regulatory concessions specifically for the fund.

In August 2022, it was announced that Lord Hammond, the former chancellor, is one of a number of well-known people who will be backing the new project, which is being called the Fintech Growth Fund for now. Fintech expert Al Lukies and Phil Vidler, who works for the Fintech Alliance, are also mentioned.

International

The Review advocated delivering an international fintech action plan, boosting international collaboration through the Centre for Finance, Innovation, and Technology (CFIT), and developing an international “Fintech Credential Portfolio” (FCP), a quality stamp, to boost credibility in foreign markets.

This month, Ezechi Britton became the first CEO of CFIT. CFIT’s main goals are to create time-limited “coalitions” of specialists to overcome fintech sector growth impediments, encourage the creation of high-income, tech-based jobs countrywide, help enterprises scale globally, and improve access to financial services for consumers and small businesses.

National connectivity

The Review called for a three-year plan to support the top 10 fintech clusters in the country, better national coordination led by the CFIT, and the growth of fintech clusters through accelerated development and investment in research and development (R&D).

Innovate Finance, FinTech Scotland, and FinTech North have put together a national network to help innovators from all over the country connect and form multiple fintech hubs and centres of excellence.

The goal of the FinTech National Network is to help the hubs work together and make important connections that will help spread their message. The network will focus on projects that are good for everyone, such as skills and talent, capital and investment, and diversity. It will also try to connect the different FinTech ecosystems in the UK and around the world.

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

“However, several components of the Kalifa Review have not been delivered. The London stock exchange is not yet seen as a top-tier destination for tech listings, and the UK is still missing a fully operational crypto regulatory regime as recommended by Kalifa. Other fintech hubs like Berlin and Paris are building talent and investment capacity all the time, so the UK 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 tech investment in a bid to cement Europe’s position as a startup friendly tech hub. Against this backdrop, it’s vital the UK government continues to support the fintech sector, encourage balanced risk-taking and drive innovation, if it wants to remain ahead of its European rivals.”

Eric Huttman, CEO of MillTechFX, said, “Since the Kalifa review came out, the macro-environment in which fintechs operate has been dominated by higher volatility, higher interest rates, and higher inflation. The uncertainty caused by this macro environment has been hard to deal with, but it has also opened up opportunities for fintechs to solve real-world problems and help those who really need it, like firms that rely on legacy providers and old technology, become more efficient and save money.

“Many of the recommendations in the Kalifa Review helped put the focus on UK fintech and build resilience which has been vital during this tough period. Momentum has not slowed and it’s vital that the fintech community continues to work together to drive the industry forward and build trust to increase adoption among businesses and consumers beholden to legacy processes and providers.”

The CEO and co-founder of Neo, Laurent Descout, said, “The last 12 months have been tough for fintechs around the world, but London has mostly been able to weather the storm.” In the last year, investment in fintech fell 30% globally, but only 8% in the UK. This shows that the UK is still a strong hub for fintech.

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