UK's New Strategic Fintech Plan: A Comprehensive Vision for the Future of Fintech
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The UK has long been a leader in the financial services sector, and its Fintech ecosystem has been thriving due to the proactive regulatory and entrepreneurial approach, even after political and economic setbacks such as Brexit.
Innovate Finance, the independent industry body that represents and advances the global FinTech community in the UK, recently released its new Fintech plan for the government as well as the regulators.
The ‘FinTech Plan for Government’ sets out priority actions the new Labour government can take to maintain the UK’s global leadership in Fintech and support the government's mission to grow the UK economy. The plan focuses on regulatory changes that would unlock growth for the UK economy without requiring additional public spending or tax cuts.
The Fintech Plan for Government 2024 outlines key strategies to enhance the UK’s financial ecosystem, focusing on innovation, security, and inclusivity.
With the release of Innovate Finance's Fintech Plan for Government, the UK is setting an ambitious roadmap to cement its position as a global fintech hub. Here, we delve into the key aspects of this comprehensive plan and explore what sets it apart, its future regulatory landscape, lessons for other Fintech hubs, and what might still be missing in the Fintech plan.
An excerpt of Innovate Finance’s Fintech Manifesto.
What Does the UK's Fintech Plan Entail?
The UK's Fintech plan is a strategic roadmap designed to foster innovation, enhance security, and drive economic growth within the financial services sector. It revolves around three main goals:
Building the World's First Smart Data Economy: This involves leveraging data to drive economic growth and productivity through Open Banking, Open Finance, and the development of Smart Data capabilities.
Ensuring the UK is the Most Secure Place for Digital Finance: By setting ambitious targets to reduce fraud, introducing a National Anti-Fraud Centre, and promoting shared responsibility among social media and telecommunications firms.
Leading in the Adoption of New Financial Technologies: Establishing a regulatory framework that supports digital financial services, enhancing financial and data literacy, and ensuring adequate funding for homegrown fintech companies.
What Makes the UK's 2024 Fintech Plan Different?
The UK's 2024 Fintech plan distinguishes itself through its comprehensive and forward-thinking approach. Unlike other regional plans, it emphasizes creating a Smart Data economy that integrates Open Finance and Smart Data schemes across various sectors, not just banking. This holistic approach is designed to drive innovation across the entire financial ecosystem, ensuring that the benefits of fintech are widely distributed.
Furthermore, the UK plan includes a strong focus on security and consumer protection, addressing the rising concern of digital fraud. The establishment of a National Anti-Fraud Centre and the push for shared liability among digital platforms are innovative steps aimed at creating a safer digital finance environment.
Key Components of the UK's FinTech Plan
Building the First Smart Data Economy
Open Banking and Open Finance: Accelerating the adoption of Open Banking, extending it to Open Finance, and integrating Smart Data schemes across sectors.
Smart Data Capabilities: Establishing statutory powers and governance frameworks for secure data sharing, which will drive innovation and efficiency in various industries, including finance, health, and energy.
Ensuring Security and Trust
National Anti Fraud Centre: Coordinating efforts across government, crime agencies, regulators, and industry to tackle fraud and improve consumer trust in digital finance.
Shared Responsibility: Holding social media and telecom companies accountable for fraud prevention to create a safer digital environment.
Leading in Technology Adoption
Regulatory Framework: Developing a forward-looking regulatory environment that supports digital financial services and encourages innovation.
Financial and Digital Literacy: Introducing financial education in primary schools and expanding data skills training for 16-18-year-olds to foster a tech-savvy population.
Governing in the Digital Age
Policy Making: Modernizing legislative processes to be more responsive to technological advancements, ensuring swift and efficient regulatory adaptations.
Prioritizing Live Issues
National Payments Vision: Finalizing and implementing a vision for the UK payments ecosystem to ensure economic resilience and global competitiveness.
Buy-Now Pay-Later Regulation: Introducing clear regulations for emerging financial products to protect consumers and support innovation.
Key Regulations Planned for the Future
The plan outlines several key regulatory initiatives:
Smart Data Legislation: To enable the introduction of Smart Data schemes across various sectors, providing a legal framework for data sharing and innovation.
Open Banking and Open Finance: Further development and implementation of standards and rules to ensure effective operation and growth of Open Banking and Open Finance.
Fraud Reduction: Setting a target to halve payment fraud by 2030, introducing shared liability for fraud across different sectors, and consolidating economic crime policy under the Financial Conduct Authority (FCA).
Digital Financial Services Regulation: Developing a regulatory framework that supports the adoption of new technologies in financial services while protecting consumers.
The plan additionally highlights the urgency for an updated Buy-Now-Pay-Later (BNPL) regulation. According to the report, the government must prioritize introducing a regulatory framework for BNPL, as the lack of policy and regulatory action has caused “uncertainty and a lack of clarity for the sector.” The proposed BNPL regulation is recommended to be underpinned by the following principles:
Outcomes-focused: Deliver good outcomes with consideration to increasing consumer understanding and better outcomes if consumers fall behind on payments.
Proportionality: Appropriate alternatives to prescriptive requirements for very long, legalese, and rigid forms of contractual information and communication under the Consumer Credit Act 1974.
Supporting digital consumer journeys: Avoid creating more friction or more complicated consumer journeys or impede the seamlessness or speed at which consumers can carry out their transactions.
Future proof: Adapt easily to market changes and new business models given the pace at which the online payments space is changing and developing.
Furthermore, Innovate Finance suggests the Regulatory Office for Innovation to develop metrics for the UK regulatory regime as a global hub for innovation, covering three core regulatory objectives, including:
Fit for purpose: Updating existing rules;
Fit for the future: Enabling innovation and
Innovative, agile regulators
Lastly, the plan recommends the UK financial services regulators to establish an emerging tech secondee programme that seeks to bring in industry and academic expertise for placements to assist regulators in building their understanding and approach to new emerging technological trends that could significantly impact the sector.
Lessons for Other Fintech Hubs
Other fintech hubs can learn valuable lessons from the UK's plan, as Innovate Finance's report is detailed, clear, and concise about the ecosystem's state and the next steps that should be taken to improve the sector. Instead of many other Fintech plans, which merely focus on the greatness of the ecosystem and sugarcoat the local approach, the Innovate Finance Fintech plan is exact. It is fearless to talk about the shortcomings of the sector. Overall, three main points can be derived from this report:
Holistic Integration of Data: The emphasis on building a Smart Data economy shows the importance of integrating data across different sectors to drive innovation and economic growth.
Security and Consumer Protection: Proactively addressing digital fraud and promoting shared responsibility among digital platforms can create a safer fintech environment.
Forward-Looking Regulation: Developing a regulatory framework that not only supports innovation but also anticipates future technological changes is crucial for sustainable growth.
Janine Hirt, CEO of Innovate Finance, released the following statement about the UK Fintech Plan: “We are delighted to launch our Fintech Plan for Government, setting out a clear, actionable program for the new government to support the continued growth of the UK FinTech ecosystem.
“Our plan highlights three big ambitions, namely making the UK the world’s first smart data economy, ensuring the UK is the safest place to use digital finance and cementing the UK as the global leader in adopting new technologies in financial services. If realized, these ambitions could add £328 billion to the UK economy over five years.
“The UK Fintech sector is driving a more sustainable and more democratic financial services sector, and the data reflects this: 60% of all SME lending across the UK today is being done by Fintech, powering forward the engine of our economy. 8 out of every 10 adults in the UK are using at least one Fintech tool on a regular basis. More than a quarter of UK Fintechs are directly addressing inequality, and more than 97% of all UK Fintech is having a medium to very high positive impact on the United Nations Sustainable Development Goals. Fintechs put the consumer first, decrease cost, and increase efficiency - and in doing so create a financial sector that works better for everyone.
“However, our research shows increasing global competition for Fintech investment, demonstrating the ever greater need for the UK policy and regulatory environment to take action to maintain our lead in Fintech and in financial services more widely. The UK has a window of opportunity to forge ahead which it cannot afford to miss.
“We would love to see early commitment from government to supporting the growth of the Fintech sector by introducing Smart Data legislation in the King’s Speech, reviewing the proposed implementation of the new mandatory reimbursement scheme for authorised push payments, committing to delivery of the Mansion House Pensions Compact to increase access to growth capital, and focusing regulators on innovation and growth.
“The majority of our proposals show how the government can take bold action without incurring direct costs to the public finances, and where quick wins could be delivered without the need for primary legislation. We look forward to working in partnership with the government on ensuring the UK builds on its place as a leading Fintech sector to foster innovation and growth in financial services.”
What is Missing in the Plan?
While the UK's Fintech plan is comprehensive, there are areas that could be further developed:
Inclusivity and Accessibility: More explicit measures to ensure that the benefits of fintech innovation are accessible to all segments of society, including underserved communities.
Global Collaboration: Although the plan mentions international cooperation on standards, a more detailed strategy on how the UK will lead global fintech innovation and collaborate with other leading fintech hubs could be beneficial.
Environmental Impact: Integration of environmental, social, and governance (ESG) criteria within the fintech framework to ensure sustainable and responsible growth.
In conclusion, the UK's Fintech plan is a robust and ambitious roadmap designed to maintain and enhance the UK's position as a global Fintech leader. By focusing on data integration, security, and forward-looking regulation, the UK aims to foster an environment where financial innovation can thrive, benefiting consumers, businesses, and the economy at large. Other Fintech hubs can look to this plan as a model for how to build a comprehensive and future-proof fintech ecosystem.
You can download the report using this link.
Innovate Finance, FinTech Plan for the Government was published on July 10, 2024.
You can download the Fintech report using this link.
