Two think tanks have urged future UK governments to protect the country’s expanding fintech sector by boosting funding levels for its financial regulators. In a joint paper, the Startup Coalition and the Tony Blair Institute for Global Change said that the British fintech scene could help the UK become one of the fastest-growing economies in the G7. However, this was only possible if stability could be assured in the sector by a well-funded regulatory ecosystem.
“From mobile banking apps that make the managing of personal finances more accessible to AI-powered lending platforms that expand access to credit for entrepreneurs, fintech has the potential to be a major driver of economic progress,” wrote Jeegar Kakkad, the Tony Blair Institute for Global Change’s director for government innovation in a blog post promoting the paper. “However, to fully realise this potential, the UK needs a policy environment that empowers people to launch and scale fintech startups, and ultimately see them thrive.”
Fintech growth essential for UK economy, say think tanks
Adequate funding for the UK’s Financial Conduct Authority (FCA) was one method by which the next government – predicted in the paper to be headed by the opposition Labour Party – could help protect the fintech sector. “From the failure of the Crypto Register, to a perception that the enforcement of existing regulations is sporadic and inconsistent, we’ve heard frequent concerns about financial regulator capacity” from fintechs, said the paper. What’s more, the authors argued, if UK regulators “cannot effectively enforce existing regulations, [fintechs] have little chance of being able to strategically innovate to compete with the EU and other jurisdictions.”
This may prove especially apt when it comes to regulating financial AI applications, the paper continued. Though the current government advocates a “light touch” to AI regulation that gives individual regulators the autonomy to decide how to arbitrate challenges arising from the technology’s use in their respective sectors, the Startup Coalition and the Tony Blair Institute said that financial watchdogs currently lack the “resources, responses, flexible processes and consistent engagement” required to perform this role.
FCA funding already rising
The paper also contained other policy prescriptions, including allowing pension funds to invest in fintechs, creating a new ‘Financial Inclusion Sandbox’ and expanding the principle of open banking to include individual access to data on mortgages, investments, savings and pensions. This ‘Open Finance’ environment would, said Kakkad, spur greater innovation among fintechs and ultimately reduce costs, expand access to capital for business and improve their cashflow.
Last month the FCA announced that its annual funding requirement would increase by 10.7% to £755m. That rise, it said, would partly be covered by financial penalties the watchdog anticipated collecting throughout 2024-25, which it predicted would amount to £35.1m. The FCA has previously been criticised for having been slow in levying such fines against crypto asset firms not complying with anti-money laundering regulations, with the National Audit Office saying that it noted “significant delays” in enforcement actions by the financial watchdog.
Read more: FCA confirms Digital Sandbox for UK financial services as it continues AI work
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