The independent review into the U.K. financial technology sector provides "sensible" recommendations to help the industry scale up and to underline its position as a global leader, according to industry observers.

The Kalifa Review of U.K. Fintech, led by former Worldpay Group Ltd. CEO Ron Kalifa, said the image of fintech being based in Shoreditch, an area of East London populated by startups, belies the country's quiet "fintech revolution," which has engendered innovation and improved financial services products in the country. But the U.K. government needs to make sure that the country is one of the best places in the world to scale up a fintech company, according to the independent review. Recommendations for achieving this include making it easier for fintechs to launch an IPO in the U.K., smoothing the way for institutional investors looking to access the sector, up-skilling and re-skilling U.K. workers and creating a new visa for global fintech talent.

The review is full of pragmatic suggestions for the U.K.'s rapidly evolving fintech market, according to Louise Beaumont, entrepreneur, regulatory adviser and chair of the Open Finance and Payments Working Group at trade association techUK.

"The Kalifa Review is the Bangers 'n' Mash of reviews. ... [S]olid, sensible sustenance suitable for an industry which is emerging from its scrappy start-up phase and growing into its scale-up boots," she said in an interview.

The U.K. should also create a £1 billion "fintech growth fund" that would act as a conduit for institutional investment into the sector, the report said. This would also give growing companies that might otherwise be pressured to sell up another option to source funding in order to continue to scale independently.

Encouraging IPOs

The U.K. needs to double down on efforts to remain competitive relative to other destinations for fintech, especially since countries such as Singapore, Canada and Australia are jostling for capital and talent, the report warned.

"The Kalifa Review of U.K. Fintech celebrates the fact that fintech represents a key strength for the U.K. and its financial services sector, but also highlights that the U.K. cannot be complacent in its objective of ensuring that it remains at the forefront of the global fintech revolution," Fionnghuala Griggs, global co-head of fintech, London, at law firm Linklaters, said in an email.

The U.K. does not struggle to attract fintech investment, having secured $4.1 billion in 2020 — more than the sum total of the next five largest European countries. But it lags in terms of IPOs. Out of 3,787 IPOs on major stock exchanges worldwide between 2015 and 2020, the U.S. alone accounted for 39%, while the U.K. paled in comparison with 4.5%, according to figures cited in the review.

The U.K. should overhaul its rules for fintech listings in order to coax more companies to list, according to the review. Ways to do this include free float reduction, which would mean a smaller proportion of shares in public ownership, a move that would allow founders to retain more control post-IPO, and a relaxation of preemption rights, which give existing investors first option on any new share issue.

The review also proposes the creation of a "global family of fintech indices."

"Once enough U.K. fintech companies have listed and formed a sub-sector, a U.K. index could become a bellwether for all U.K. fintech stocks and cement the country's reputation as a listing destination," the report said.

From sandbox to 'scalebox'

The review also suggests creating a "scalebox," an extension of the U.K.'s popular fintech sandbox initiative, which aims to create a safe environment for fintechs to test new ideas with the blessing of the regulator.

The focus on helping fintechs to scale is welcome, according to Nick Lee, head of regulatory and government affairs at U.K.-based OakNorth.

"The challenge in a post-Brexit world is that the U.K. has to be one of the best places to scale a fintech," he said in an interview.

Getting the right talent, whether home-grown or international, is also essential for fintechs looking to scale up, so the review's focus on getting appropriate training and visas in place is particularly sensible, Lee said.

The "scalebox" concept proposed by the review appears to be a very logical progression for the sector, according to Simon Lafferty, a senior associate in the financial services team at law firm Fieldfisher.

"The report is effusive about the benefits of the [Financial Conduct Authority] Sandbox as a nurturing environment for U.K. fintechs and its role in cross-pollinating into broader technology solutions that are bringing down costs for the functioning and delivery of financial services.

"The proposals to enhance the sandbox, create a new permanent 'digital sandbox' and a 'scalebox' are welcome and natural next steps provided they are, as Kalifa recommends, accompanied with appropriate regulatory support for businesses at these stages of development," he said in an email.

The U.K. launched its first sandbox in 2016, and the model has since been copied by numerous countries around the world.