UK government backs fintech industry
Big news out of the UK this week as the chancellor of the Exchequer, George Osborne, laid out the government’s approach to supporting a thriving financial technology (fintech) industry. He made his remarks at the same time UK Trade & Investment (UKTI), a UK government department, published a report highlighting the UK’s suitability for fintech growth.
In his remarks, Osborne described four ways the government is planning to promote fintech development and investment in the UK:
- A favorable tax & investment regime. Implementing an improved tax regime – one that encourages investment in start-ups, incentivizes start-ups to develop innovative technologies by reducing the tax rate applied to profits from new inventions, and opens up the peer-to-peer lending market to investors through individual savings accounts – promises to provide additional support to the fintech sector. Osborne also intends to extend, by a further £100 million ($170 million), a British Business Bank public investment program that supports in the development of innovative forms of finance.
- A favorable regulatory environment. Recognizing that regulation needs to be “pro-innovation,” Osborne remarked that the Financial Conduct Authority (FCA) is “committed” to helping fintech firms navigate the regulatory system “and identify areas where the regulatory system needs to adapt to new technology.” Without providing further details, Osborne also stated that the government intends to launch a program to explore the potential of virtual currencies and digital money.
- A favorable digital infrastructure to support fintech development. For fintech companies to reach their potential, they must be able to rely on digital infrastructure that supports inter-connectivity, including high-speed broadband.
- Promotion of the industry. The government, through UKTI, will promote the UK fintech industry around the world through its network of embassies and trade delegations.
The UKTI report highlights the country’s favorable regulatory and economic environment for fintech development:
- Dramatic growth in fintech investment in the region. Investment in fintech has increased nearly eightfold in the UK and Ireland between 2008 and 2013, to $265 million, with deal volume growing at an annual rate of 74 percent during the period. Annual investment in the region nearly doubles the global average and that of Silicon Valley.
- A global financial & education hub. More than 250 foreign banks and nearly 600 foreign financial services companies conduct business in London every day. In addition, international students are drawn to top-ranked universities in the UK, creating a well-qualified and diverse talent pool for the fintech sector.
- Growing acceptance of online finance models. The alternative financing market in the UK has grown by an annual average of more than 75 percent in the last three years, resulting in increased capital commitments to start-ups and SMEs. Estimated annual revenue generated across four fintech sectors (payments, software, data and analytics, and unique financial platforms) is £20 billion ($34 billion).
- Supportive government regulation. The UK FCA’s Project Innovate seeks to ensure that the fintech sector can operate effectively within the regulatory structure. As FCA CEO Martin Wheatley said in May, the FCA will provide advice to fintech firms on navigating the regulatory structure as well as ensure that the regulatory structure itself is capable of adapting to new technologies or other changes.
The Milken Institute Center for Financial Markets will continue to analyze the emergence and growth of financial technologies, their potential impact on traditional financial markets and services, and the various ways governments can develop policy frameworks that responsibly facilitate fintech development. This week’s news from the UK will help shape the Institute’s planning of its London Summit, October 27-28, where we will take a deeper dive into the fintech industry and market developments, and identify workable regulatory frameworks that create an environment conducive to fintech investment and development.