After 14 years in opposition, the UK Labour Party this morning returned to government, defeating the Conservative Party in a landslide. How can an incoming Labour government help support the development of UK FinTech?
During and prior to the start of the campaign, the Labour Party has been making various soundings about how it intends to bolster the FinTech space. As stated by Henry Balani, Global Head of Industry & Regulatory Affairs at Encompass Corporation, he believes it is time for the incoming government to step up to capitalise on UK FinTech potential.
He said, “The FinTech industry is of strategic importance to the UK, with both major parties stressing its place in supporting the economy, as outlined in their manifestos. The Labour Party specifically states that ‘financial services are one of Britain’s greatest success stories,’ and that ‘Labour will create the conditions to support innovation and growth in the sector, supporting new technology, including Open Banking and Open Finance and ensuring a pro-innovation regulatory framework.”
He also outlined that the incoming government has pledged to create a new Regulatory Innovation Office, which intends to bring together existing innovation-related regulatory functions across the UK Government. “This new office needs to be embraced, to help regulators update regulation, improve approval timelines and coordinate regulatory issues to open up the arena for financial services organisations to safely grow,” professed Balani.
Beyond this, other areas of growth potential include AI – which is a priority for FinTech development and must be carefully considered as solutions develop fast. Labour, Balani exclaimed, has pledged to ensure its overall industrial strategy supports the development of this tech initiative.
He added, “Recognising the challenges related to AI, any incoming Government needs to introduce regulations that ensure safe and responsible development of AI models. This, in turn, will lead to greater adoption of AI by FinTech firms within their financial services product portfolios.”
Open banking and open finance are also areas of paramount importance that are ongoing initiatives with direct impact on UK FinTech. The Open Banking regulation, introduced in 2018 by the Competition and Markets Authority, mandates the UK’s largest banks to make their customer data available to third-party providers, primarily FinTech firms, through secure application programming interfaces to create better financial products and services for consumers.
“The Open Finance initiative is an extension of the Open Banking framework to include a wider range of financial products including mortgages, insurance products, pensions and investments to name a few. The overall goal is to create a competitive financial services market in the UK, bolstering the FinTech industry, and also linking back to economic growth aims, which should be paramount across activities,” said Balani.
In a similar vein, James Lynn, co-founder of Currensea and BuildMyCreditScore, outlined that open banking has been one of the UK’s biggest success stories, with genuine world-leading regulation supporting its development, enabling countless FinTechs to bring ‘innovative and effective solutions’ to market, to tackle the challenges consumers and businesses have faced over the last few years.
Lynn stated, however, although open banking adoption has continued to rise, it’s concerning in his view that progress appears to be stagnating with innovation slowing in recent years. There is a significant danger, Lynn claims, that other markets are not only catching up with us, but in some cases overtaking the UK.
“The incoming government needs to signal strong support of the industry to keep the momentum of open banking going and provide the foundations for the next generation of innovative fintechs to help address some of the key issues we face today, such as financial inclusion.
“In terms of specifics to address, we’d like to see all players implement APIs, as per FCA requirements, rather than remaining reliant on Modified Customer Interface (MCI), and to enhance the reliability of integrating open banking functionality across financial providers of all sizes. It’s vital we ensure that the UK remains leaders in this area on the world stage, to drive competition and choice for consumers,” Lynn remarked.
Another area of importance for the FinTech space, Balani stresses, are public-private partnerships – given the regulatory framework they work under. “Current regulatory sandboxes sponsored by the FCA should continue to be supported, with public driven priorities provided by the Government, including those aimed at underserved financial communities and sustainable finance.
“A pro-collaboration mindset is always important to effectively engage the FinTech community, while continuing to promote innovation across the sector, and this will be key for the incoming Government, which must back up ambitions with action in order to unlock the vast potential in front of us,” he concluded.
Supporting SMEs
Sinead McHale, CEO of FinTech Satago, highlighted another area that the incoming government will be keeping a keen eye on – addressing the needs of SMEs and improving their access to cashflow. Getting this right, she explains, will be crucial in her mind for building a business environment that benefits SMEs and the wider UK.
She commented, “SMEs are the heart of the UK economy, contributing significantly to employment, innovation and economic growth. Their concerns and needs must be urgently prioritised by the new government, especially in the current climate. Business costs remain high, despite the signs of easing inflation. SMEs continue to grapple with challenges around profitability and long-term growth plans, with limited access to finance and late payments persisting from larger corporations.”
She went on to explain that SMEs need further support from the new government – including stricter penalties for late payments from larger companies and incentivising prompt payment practices.
“Increased collaboration between fintechs and banks will also help SMEs adopt more sustainable cashflow management practices. For example, invoice financing helps SMEs build resilience against future challenges and increases visibility by allowing them to access capital via their balance sheets. By prioritising fintech development, the new government can demonstrate its commitment to fostering a business environment that benefits SMEs and the entire UK,” said McHale.
Carried interest
Meanwhile, Julie Cunningham, founder and CEO of Portend, said that in anticipation of an incoming Labour government, the UK FinTech market should be wary of the impact of changes to carried interest.
She remarked, “Labour’s plan to tax carried interest as income, rather than capital gains, aims to increase tax revenue and promote fairness. This could reduce private equity returns, affecting investment strategies and potentially limiting capital for fintech startups.
“While the policy might generate significant revenue, estimated at £440m annually, it could also drive firms to relocate, impacting the UK’s financial competitiveness and the fintech sector’s innovation. Balancing tax equity with investment incentives is crucial to mitigate these risks.”
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