Kalifa fintechreview exec_summary

Kalifa Review of UK Fintech
Executive Summary

Kalifa Review of UK Fintech | 4
Recommendations at a glance: 5 point plan
Policy and
Regulation
• Deliver a digital finance package that creates a new regulatory framework for emerging technology
• Implement a “Scalebox” that supports firms focusing on scaling innovative technology
• Establish a Digital Economy Taskforce (DET) to ensure alignment across government
• Ensure that fintech forms an integral part of trade policy
Skills • Retrain and upskill adults in support of UK fintech by ensuring access to short courses from
high-quality education providers at low cost
• Create a new visa Stream to enhance access to Global Talent for fintech scaleups
• Build a pipeline of fintech talent by supporting fintech scaleups to offer embedded work placements to
Further Education and Higher Education students and Kickstarters
Investment • Expand R&D tax credits, Enterprise Investment Scheme and Venture Capital Trusts
• Unlock institutional capital to create a £1bn “Fintech Growth Fund” of sufficient
scale to act as the catalyst in developing a world leading ecosystem
• Improve the listing environment through free float reduction, dual class shares and relaxation of pre-emption rights
• Create a global family of fintech indices to enhance sector visibility
International • Deliver an international action plan for fintech
• Launch an international “Fintech Credential Portfolio” (FCP) to support
international credibility and increase ease of doing business
• Drive international collaboration through the Centre for Finance, Innovation and Technology ,
and launch an International Fintech Taskforce
National
connectivity
• Nurture the high growth potential of the top 10 fintech clusters
• Drive national coordination strategy through Centre for Finance, Innovation and Technology
• Accelerate the development and growth of fintech clusters through further investment, such as in R&D

Kalifa Review of UK Fintech | 5
Executive Summary
Over the past decade, the UK has been quietly
undergoing a fintech revolution – in jobs, innovation,
improvements to people’s lives and in increased
opportunities in global trade.
Yet for many, the image of fintech is stuck in Shoreditch, an
area of East London populated by start-ups and coffee shops
catering to the mythologised young laptop entrepreneurs of
“Silicon Roundabout”.
A look at the record of achievement helps project the true picture.
Let’s quickly scroll back 10 years.
Back then, it took days to open a current account. Now you can be
onboarded in minutes, and more safely and securely, leveraging
regtech solutions and challenger bank innovation.
Back then, people had only a few options for managing
their savings and pensions – using paper updates. Now there
is more choice, pensions can be tailored to specific needs,
easily amalgamated and they are online with immediate,
accessible interfaces.
Back then, if you were a new business seeking SME financing,
there was limited choice of providers on the high street with
slow decision-making processes. Now, there is digital access to
a wide array of lenders looking to leverage machine learning
and AI tools, and provide immediate decisions on a new loan or
refinancing opportunities.
“
Consumers and businesses are rapidly changing the
way they interact with financial services and the
fintech sector is ideally placed to respond to this
changing dynamic. This will result in the creation
of new digital jobs to power our most innovative
businesses, inspire a next generation of entrepreneurs,
and in turn enable the growth of global champions.
We must remain an ambitious partner in a sector
where we are at the forefront of global thought
leadership.”
Charlotte Crosswell
CEO Innovate Finance
“
This is a pivotal moment for the UK. There are
significant opportunities offered by fintech – an area in
which London already has unmatched global appeal.
But for the UK to retain its position as world leader
and continue to attract investment into the sector,
it is vital to offer an environment which supports
innovation. The Kalifa review offers a roadmap to
achieving this.”
Catherine McGuinness
Policy Chair, City of London Corporation

Executive Summary Kalifa Review of UK Fintech | 6
Fast forward to today. Achievements like these have contributed
to making the UK envied around the globe as a hotbed of
fintech activity – and its successive governments and regulators
admired for building a supportive enabling environment that puts
innovation at the top of the regulatory agenda.
The Financial Conduct Authority’s (FCA) pro-competition mandate
has helped support new fintech firms and ensure a more nurturing
regulatory environment. In 2016, the FCA launched the world’s
first regulatory “sandbox”, which was subsequently replicated
abroad by regulators looking to follow the UK’s lead in innovation.
Similarly, the Bank of England and the FCA’s ‘New Bank Start-up
Unit’ provides additional support and advice for firms looking to
gain a banking licence.
This in turn is accelerating the digital transformation of banks,
asset managers, and insurers, as they strive to meet changing
consumer and business demand. Big Tech is moving into this
space, highlighting the value of data-led solutions in financial
services. Because of the strength of our incumbent financial
services sector, fintech has found extremely fertile ground. Yet
it has also created opportunities to cross-pollinate into broader
technology solutions, leveraging cross-cutting applications like big
data, AI and quantum computing. Combined, these trends create a
pivotal moment to support fintech innovation.
This catalysed the UK into becoming the fintech hub of today,
coupling it with the sophisticated financial services ecosystem
of London, where so-called “unicorns” such as Wise, Onfido,
Checkout.com and Revolut have based themselves.
This has resulted in an impressive scorecard:
• Representing 10% of global market share1
and £11bn in
revenue2
, the UK is a dominant force in fintech.
• The total tech spend by UK financial services firms was
£95bn in 20193
.
• SMEs and corporates are all keen users of fintech. UK citizens
are becoming digitally active and 71% are now using the
services of at least one fintech company4
.
• Investment into UK fintech stood at $4.1bn in 2020 – more than
the next 5 European countries combined5
.
1 KPMG analysis
2 https://assets.ey.com/content/dam/ey-sites/ey-com/en_gl/topics/emeia-financial-services/ey-uk-
fintech-2020-report.pdf
3 https://assets.ey.com/content/dam/ey-sites/ey-com/en_gl/topics/emeia-financial-services/ey-uk-
fintech-2020-report.pdf
4 https://www.ey.com/en_uk/ey-global-fintech-adoption-index
5 https://www.innovatefinance.com/capital/#:~:text=Global%20FinTech%20investment%20
reaches%20%2444,increase%20of%2014%25%20from%202019.&text=H2%202020%20saw%20
a%2076,a%206%25%20increase%20from%202019.
“
At Monzo, we’re really proud
to be part of an industry
that is always working to
change finance for the
better and give consumers
more options. It’s why
we’re supportive of this
Review’s recommendations
which would help the next
generation of financial
technology companies get off
the ground, while enabling
established companies,
like Monzo, to take it to the
next level.”
TS Anil
CEO, Monzo

However, the trajectory of UK fintech is at an inflection point of
opportunity – and risk. While the UK’s position is well established,
its future is not assured.
There are three broad threats to our fintech leadership position,
each of which point to three opportunities that must be grasped
through immediate action to create an economy that works
inclusively and sustainably for its citizens while securing the
ambitions for “Global Britain”.
• Competition: Overseas centres are seeking to emulate the
UK’s success. Competitor jurisdictions such as Singapore,
Australia and Canada are investing heavily across many of the
areas we have looked at, including capital, skills and direct
support for fintechs.
• Brexit: Brexit has created regulatory uncertainty in
specific areas relevant to fintech. Firms must navigate the
immigration system for European Union talent for the first
time – whilst rival jurisdictions are rolling out aggressive
attempts to lure talent in.
• Covid: The pandemic has accelerated digital adoption
globally in a way that marketing or policy never could. This
is creating opportunities for jurisdictions that are quickest to
diagnose what’s happening and nimblest to capitalise on the
opportunities for fintech.
“
As we start 2021, facing
economic challenges across
the globe, it is essential to
preserve and strengthen
the UK’s position as the first
choice to launch and grow a
fintech business. I welcome
the Kalifa Review and the
Government’s commitment
to ensuring that the UK
remains a world leader in
innovation and growth. As
Revolut’s founder I know
the importance of the UK’s
commitment to innovation
and to being the best place
to start and scale a fintech. I
hope the Review gives us the
pathway to ensuring that the
UK retains this leadership.”
Nik Storonsky
Co-Founder and CEO, Revolut

The prize lies in three opportunities:
• Jobs: Fintech is embedded across the UK with the potential
to create high income tech-based employment, becoming an
engine of the “levelling up” agenda, as well as playing a part in
upskilling and retraining the existing workforce. The sector’s
direct GVA contribution to the economy is estimated to be
£13.7bn by 2030, with job creation contributing to 70% of this.6
• Trade: Enabling fintechs to achieve global scale and reach via
access to international markets, and continuing to lead on
regulation and standard-setting in fast-moving tech. We see
fintech as a core asset for Global Britain.
• Inclusion and Recovery: Supporting citizens and small
businesses to access more, better and cheaper financial
services – and doing so in a sustainable way to help “build
back better”.
6 KPMG analysis
Building on our current position, this Review has identified a
Five-Point Plan of recommendations to deliver this approach and
achieve our vision:
• Policy and Regulation – dynamic leadership that protects
consumers yet nurtures fintech activity and encourages
competition
• Skills – ensuring fintech has a sufficient supply of domestic
and international talent and the means to train and upskill our
current and future workforce
• Investment – completing the funding ladder from start-ups
right through to IPO
• International – a targeted approach to exports and inward
investment
• National connectivity – leveraging the output of fintechs
across the UK and facilitating connectivity amongst them
Set out below is both a strategy for the fintech sector and a
delivery model to help the UK realise it. This will enable us to move
from being a global leader in fintech start-ups, to the best place to
scale a business, and take solutions from IP creation through to
widespread adoption. That is when the full impact and opportunity
of a thriving fintech sector will be realised.
“
The Kalifa Review has the
potential to be a seminal
moment for the fintech
sector in the UK. It is time to
re-invigorate the sector, and
I know that fellow founders
want to play their part in
driving growth, innovation,
and in the process, an
economic recovery for the
whole country.”
Christian Faes
Exec Chair & Co-Founder,
LendInvest

Recommendations
Policy and Regulation
The UK has led the way globally in its policy and regulatory
approach to fintech. This is exemplified in the regulatory sandbox.
As businesses, technologies and solutions scale, we need to
ensure the policy and regulatory approach continues to not only
protect consumers but also creates an enabling environment that
encourages growth and competition.
We therefore propose to:
• Deliver a digital finance package that creates a new
regulatory framework for emerging technology: The UK
must prioritise new areas for growth and cross-industry
challenges such as financial inclusion, and adopt specific policy
initiatives that will help create an enhanced environment for
fintech, such as digital ID and data standards.
• Implement a “Scalebox” that supports firms focusing on
scaling innovative technology: This would include enhancing
the Regulatory Sandbox, making permanent the digital
sandbox pilot, introducing measures to support partnering
between incumbents and fintech and regtech firms, and
providing additional support for regulated firms in the
growth phase.
• Establish a Digital Economy Taskforce (DET): Multiple
departments and regulators have important fintech
competencies and functions. The DET would be responsible
for collating this into a policy roadmap for tech and digital, in
particular, the digital finance package. It would provide a ‘single
customer view’ of the government’s regulatory strategy on tech
and a single touchpoint for the private sector to engage.
• Ensure that fintech forms an integral part of trade policy:
The UK must build upon early successes and ongoing industry
engagement and further develop its global trade policy
in relation to fintech, ensuring a coherent and consistent
approach, as well as to secure commitments in its future trade
agreements that would benefit fintech.
Concerning the Competition
and Markets Authority (CMA),
it is clear from stakeholder
feedback that the CMA must
adapt its approach to this
complex sector in order to
better balance competition
and growth. There is a case
for more flexibility in the
assessment of mergers and
investments for nascent and
fast-growing markets such as
fintech. Success brings scale
but as some businesses thrive,
others inevitably will fail. Some
consolidation will therefore be
critical in facilitating the growth
that UK fintechs need in order
to become global champions.
The CMA’s mandate must
reflect these market dynamics.
Recommendations
The UK has led the way globally in its policy and regulatory
approach to fintech. This is exemplified in the regulatory sandbox.
As businesses, technologies and solutions scale, we need to
ensure the policy and regulatory approach continues to not only
protect consumers but also creates an enabling environment that
encourages growth and competition.
• Deliver a digital finance package that creates a new
regulatory framework for emerging technology: The UK
must prioritise new areas for growth and cross-industry
challenges such as financial inclusion, and adopt specific policy
initiatives that will help create an enhanced environment for
fintech, such as digital ID and data standards.
• Implement a “Scalebox” that supports firms focusing on
scaling innovative technology: This would include enhancing
the Regulatory Sandbox, making permanent the digital
sandbox pilot, introducing measures to support partnering
between incumbents and fintech and regtech firms, and
providing additional support for regulated firms in the
growth phase.
• Establish a Digital Economy Taskforce (DET): Multiple
departments and regulators have important fintech
competencies and functions. The DET would be responsible
for collating this into a policy roadmap for tech and digital, in
particular, the digital finance package. It would provide a ‘single
customer view’ of the government’s regulatory strategy on tech
and a single touchpoint for the private sector to engage.
• Ensure that fintech forms an integral part of trade policy:
The UK must build upon early successes and ongoing industry
engagement and further develop its global trade policy
in relation to fintech, ensuring a coherent and consistent
approach, as well as to secure commitments in its future trade
agreements that would benefit fintech.
Policy and Regulation
Concerning the Competition
and Markets Authority (CMA),
it is clear from stakeholder
feedback that the CMA must
adapt its approach to this
complex sector in order to
better balance competition
and growth. There is a case
for more flexibility in the
assessment of mergers and
investments for nascent and
fast-growing markets such as
fintech. Success brings scale
but as some businesses thrive,
others inevitably will fail. Some
consolidation will therefore be
critical in facilitating the growth
that UK fintechs need in order
to become global champions.
The CMA’s mandate must
reflect these market dynamics.

Skills
There is a rich pool of fintech talent in the UK, supported by a
world class university system and as many as 67% of the UK’s
fastest growing fintechs consider talent to be a high priority7
.
• Retrain and upskill adults to meet the needs of UK fintech
by ensuring access to short courses from high-quality
education providers at low cost: It is estimated that 90% of
the UK workforce will need to be reskilled by 20308
. Covid has
intensified this challenge. Fintech has the potential to create
new jobs and support effective retraining and upskilling efforts
across the UK.
• Create a new visa Stream to enhance access to Global
Talent for fintech scaleups: UK fintech thrives on recruiting
and retaining talent from across the globe. Foreign talent
represents c.42% of UK fintech employees. In order to remain a
global leader in fintech, the UK needs to strengthen its position
on immigration or risk a significant shortage in human capital.
7 Industry Survey – Innovate Finance
8 https://www.cbi.org.uk/media/5723/learning-for-life-report.pdf
• Build a pipeline of fintech talent by supporting fintech
scaleups to offer embedded work placements to Further
Education and Higher Education students and Kickstarters:
Due to covid, around 700,000 young people have left education
into an extremely difficult jobs market9
. Fintech can provide
young people with access to employment opportunities in an
exciting and expanding sector. But more is needed to support
students to understand these opportunities. And fintech
leaders need more interaction with students throughout
the curriculum.
9 https://www.bbc.com/news/business-53985144
There is a rich pool of fintech talent in the UK, supported by a
world class university system and as many as 67% of the UK’s
fastest growing fintechs consider talent to be a high priority7
.
• Retrain and upskill adults to meet the needs of UK fintech
by ensuring access to short courses from high-quality
education providers at low cost: It is estimated that 90% of
the UK workforce will need to be reskilled by 20308
. Covid has
intensified this challenge. Fintech has the potential to create
new jobs and support effective retraining and upskilling efforts
across the UK.
• Create a new visa Stream to enhance access to Global
Talent for fintech scaleups: UK fintech thrives on recruiting
and retaining talent from across the globe. Foreign talent
represents c.42% of UK fintech employees. In order to remain a
global leader in fintech, the UK needs to strengthen its position
on immigration or risk a significant shortage in human capital.
7 Industry Survey – Innovate Finance
8 https://www.cbi.org.uk/media/5723/learning-for-life-report.pdf
• Build a pipeline of fintech talent by supporting fintech
scaleups to offer embedded work placements to Further
Education and Higher Education students and Kickstarters:
Due to covid, around 700,000 young people have left education
into an extremely difficult jobs market9
. Fintech can provide
young people with access to employment opportunities in an
exciting and expanding sector. But more is needed to support
students to understand these opportunities. And fintech
leaders need more interaction with students throughout
the curriculum.
9 https://www.bbc.com/news/business-53985144
Skills

Investment
Private funding has been crucial to the success of the UK as a
fintech hub but more can be done to support firms at the later
stages of funding.
• Expand R&D tax credits, Enterprise Investment Scheme
(EIS) and Venture Capital Trusts (VCT): 97% of founders
have used tax-incentivised investment schemes including EIS,
Seed Enterprise Investment Scheme (“SEIS”) and VCT, 47%
were concerned about their ability to qualify for such tax relief
if their business models switched from being unregulated to
regulated in the future10
.
• Unlock institutional capital to create a £1bn “Fintech
Growth Fund” of sufficient scale to act as the catalyst in
developing a world leading ecosystem: With a £2bn fintech
growth capital funding gap11
in the UK, many entrepreneurs
prefer to sell rather than continue to build their promising
company. There is £6 trillion12
in UK private pension schemes
alone, a small portion of which could be diverted to high
growth technology opportunities like fintech. This is likely to
fall within the remit and interests of the Productive Finance
Working Group.
10 Survey commissioned for the Kalifa Review
11 https://www.scaleupinstitute.org.uk/news/call-for-greater-coordination-between-private-and-
public-sector-to-address-growth-capital-gap/
12 https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/
incomeandwealth/bulletins/pensionwealthingreatbritain/april2016tomarch2018
• Improve the listing environment through free float
reduction, dual class shares and relaxation of pre-emption
rights: Out of the 3,787 initial public offerings (IPOs) at the
world’s major stock exchanges between 2015 and 2020, the US
alone accounted for 39% (via the NASDAQ and the NYSE), while
the UK trailed with 4.5%13
.
• Create a global family of fintech indices to enhance sector
visibility: Once enough UK fintech companies have listed and
formed a sub-sector, a UK index could become a bellwether for
all UK fintech stocks and cement the country’s reputation as a
listing destination.
13 KPMG analysis
Private funding has been crucial to the success of the UK as a
fintech hub but more can be done to support firms at the later
stages of funding.
• Expand R&D tax credits, Enterprise Investment Scheme
(EIS) and Venture Capital Trusts (VCT): 97% of founders
have used tax-incentivised investment schemes including EIS,
Seed Enterprise Investment Scheme (“SEIS”) and VCT, 47%
were concerned about their ability to qualify for such tax relief
if their business models switched from being unregulated to
regulated in the future10
.
• Unlock institutional capital to create a £1bn “Fintech
Growth Fund” of sufficient scale to act as the catalyst in
developing a world leading ecosystem: With a £2bn fintech
growth capital funding gap11
in the UK, many entrepreneurs
prefer to sell rather than continue to build their promising
company. There is £6 trillion12
in UK private pension schemes
alone, a small portion of which could be diverted to high
growth technology opportunities like fintech. This is likely to
fall within the remit and interests of the Productive Finance
Working Group.
10 Survey commissioned for the Kalifa Review
11 https://www.scaleupinstitute.org.uk/news/call-for-greater-coordination-between-private-and-
public-sector-to-address-growth-capital-gap/
12 https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/
incomeandwealth/bulletins/pensionwealthingreatbritain/april2016tomarch2018
• Improve the listing environment through free float
reduction, dual class shares and relaxation of pre-emption
rights: Out of the 3,787 initial public offerings (IPOs) at the
world’s major stock exchanges between 2015 and 2020, the US
alone accounted for 39% (via the NASDAQ and the NYSE), while
the UK trailed with 4.5%13
.
• Create a global family of fintech indices to enhance sector
visibility: Once enough UK fintech companies have listed and
formed a sub-sector, a UK index could become a bellwether for
all UK fintech stocks and cement the country’s reputation as a
listing destination.
13 KPMG analysis
Investment

International
Building on the success of the UK government sponsored Fintech
Bridges, and future digital trade opportunities, taking additional
steps to strengthen the international operational support offered
in the UK and targeted overseas markets would make a big
statement about the international openness of the UK in a post-
Brexit environment.
• Deliver an international action plan for fintech:
The action plan represents a combination of public and
private sector priorities and identifies sectors and markets with
the highest potential to scale and build leading positions for UK
fintech companies.
• Drive international collaboration through the Centre for
Finance, Innovation and Technology (CFIT), and launch an
International Fintech Taskforce: Led by Government
with the purpose of gathering fintech and industry input to
achieve progress against the ‘international plan for fintech’.
(CFIT – see page 13)
• Launch an international “Fintech Credential Portfolio”
(FCP) to support international credibility and increase
ease of doing business: Led by CFIT, the FCP will help fintechs
demonstrate an international sign of quality, resilience, trust
and standing to participants in international markets.
National Connectivity
There is an abundance of fintech talent spread throughout the UK,
supported by the Fintech National Network14
. To maintain the UK’s
position as a fintech hub we must focus on scale and supporting
regional specialisms – especially the significant intellectual
property being created in universities.
• Nurture the high growth potential of the top 10 fintech
clusters: Each cluster should produce a three-year
strategy to support growth, foster specialist capabilities, and
enhance national. (CFIT – see page 13)
• Drive national coordination strategy through CFIT:
To ensure future fintech competitiveness and growth across
the UK connectivity. (CFIT – see page 13)
• Accelerate the development and growth of fintech clusters
through further investment such as in R&D.
14 https://www.innovatefinance.com/fintechnationalnetwork/
“
We warmly welcome the
Kalifa Review. As the UK
looks to forge its own path
in the world, it is absolutely
right that the Government
explores how it can ensure
the ongoing success of the
UK fintech sector. We hope
this Review will help create
the right conditions for UK
fintechs to grow and succeed
and look forward to working
with the Government and the
fintech ecosystem to ensure
the UK retains its position as
a global centre for fintech and
innovation.”
Ashok Vaswani
CEO, Consumer Banking &
Payments, Barclays
Brexit environment.
fintech companies.
International National Connectivity
“
innovation.”
Ashok Vaswani
Payments, Barclays
Brexit environment.
fintech companies.
International National Connectivity
“
innovation.”
Ashok Vaswani
Payments, Barclays

Delivery
We need to combine the best of government and policymaking
with the innovative flair of the people who have built and lead UK
fintech. This means building public-private coordination to ensure
strategic focus and an official government mandate to pursue it.
We therefore recommend a government-backed “Centre for
Finance, Innovation and Technology” (CFIT), mandated and
supported by the Government, but led by the private sector to
coordinate targeted fintech policies that aim to scale the sector.
CFIT will build “execution capability” against all three of the
opportunities identified above:
• Future jobs, nationwide: Build a skills platform that will
deliver short-courses from approved providers for upskilling
and re-skilling and an exchange to place HE/FE students into
work placements in the sector.
• Trade and Global leadership: Alongside DIT, support the
execution of the international plan for fintech and align the
UK’s strengths in fintech with trade agreements and developing
markets.
• Inclusion and Recovery: Industry wide coalitions on key issues
like financial inclusion, SME lending, Open Finance and Digital
ID. These would bring together banks, Big Tech, data providers,
fintechs and policymakers to solve the challenges of scaling
solutions and creating economic benefits.
Conclusion
Technological change has arrived in financial services and with
it, an abundance of threats and opportunities. Threats to the
UK’s competitive position, but also opportunities to innovate
and grow. Threats to consumers and labour markets, but also
opportunities for job creation and supporting the development
of a digitally capable citizenry. To succeed, our efforts must be
comprehensive and collective.
We must hold ourselves to account in delivering the strategy
outlined in this proposal. One year from today, both the public
and private sector must come back to report on the progress
they have made to deliver the recommendations in this Review.
The Government should consider appointing a fintech ‘business
champion’, to support fintech and deliver this strategy.
The time to act is now.
“
Britain’s fintech sector is
admired across the globe
and has a crucial role to play
in supporting the economy
as we look to recover from
Covid-19.
“Small businesses are the
backbone of our economy
– many have been hit
hard by the crisis. I admire
the resilience of so many
business owners that haven’t
thrown in the towel but
found ways to keep their
businesses going, and in
many cases found new
opportunities. I am proud
that we could play our part
by providing the necessary
financing.”
“The recommendations
within this Review will allow
us to leverage the innovative
technology we have built to
support even more of our
customers in the future.”
Christoph Rieche
CEO & co-founder, iwoca

theglobalcity.uk
cityoflondon.gov.uk innovatefinance.com

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