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Regulatory Barriers & Funding Woes Put UK’s Fintech Stature at Risk

The UK has produced some of the world’s most successful and innovative fintech companies and has long been heralded as a leading global hub for financial technology. But there are growing concerns that the UK is losing its fintech edge.

This week saw the release of the latest Fintech Founders Summer Survey – an annual series gauging the views of more than 300 founders across the UK fintech sector – which revealed overwhelming pessimism about the economic outlook and falling confidence in the UK fintech scene.

Since its previous survey, there has been a significant fall in the number of founders who think that the UK is currently the world leader in fintech – from 56 per cent agreeing last year to 38 per cent this year.

Eighty-seven per cent of founders said they were either not very, or not at all, confident in the outlook for the UK economy over the next 12 months.

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Access to funding remains the single most-cited barrier for founders as they look to grow their company.

In the first half of 2022, UK fintech investment dropped to $9.6billion, down almost threefold from $27.8billion in the same period in 2021, according to KPMG’s Pulse of Fintech, a bi-annual report on fintech investment trends.

A number of founders surveyed have called for the Government, under the new Prime Minister Liz Truss, to improve access to grants and funding particularly for fintechs at early stage and growth stage, with growth capital being made available either directly or through organisations like the British Business Bank (BBB).

Regulation concerns

Another common frustration raised by founders in the Fintech Founders survey, is that “regulators are still all too unresponsive to the challenges faced by fast-growing tech companies”. Almost a third (30 per cent) of founders said regulation is preventing further growth. While more than a quarter of founders (25.9 per cent) called for better resourcing at the Financial Conduct Authority (FCA).

A number of founders feel the FCA is “understaffed and…slow”, while one respondent said that “better resource is needed for the FCA to cut waiting times for permissions applications”.

This is echoed by the Westminster think tank Parliament Street, which warned this week that the UK’s “overly complex regulatory environment” has suffocated the ability of financial services firms from gaining a competitive edge.

Parliament Street’s CEO Patrick Sullivan said: “The financial services industry is the lifeblood of the British economy, and we cannot continue to allow excessive paperwork and compliance rules to suffocate its growth.”

regulation

Fintech entrepreneur Khalid Talukder, co-founder at FX markets specialist DKK Partners, shares Sullivan’s concerns. He suggests the constraints of the 2008 global financial crisis have kept the “city of London on a leash for far too long”.

Talukder says: “Overwhelming amounts of regulation and red tape has effectively chloroformed entrepreneurs and ambitious financial services firms, while rival cities have been set free to expand and grow without interference.”

Their comments follow the announcement by the Prime Minister that she planned to reform regulations so that “when business set up they’re not hit by mountains of red tape, they’re able to get on to growing the country”.

Considered approach

However, Daniel Layne, founder and CEO of fintech QV Systems, says changes to regulation should be “proportionate and considered” to avoid unintended harm to the long-term future of the financial services industry.

“It’s important to recognise that regulation plays a crucial role in protecting consumers and businesses from poor practices such as mis-selling, data loss and fraud,” he said. “While proposals to roll-back some of these policies to liberate the city and drive economic growth are admirable, great care needs to be taken to mitigate any negative issues that may arise from these measures.”

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