The Kalifa review: R3’s recommendations for the future of fintech
R3 was one of a roster of fintechs that contributed to the Kalifa review – a set of recommendations outlined for the UK’s fintech community to grow and flourish in the years ahead. R3’s Managing Director, Charley Cooper, shares the recommendations that R3 put to Ron Kalifa, which helped shape the outcome of the review.
Policy and Regulation
We believe that the UK provides an innovation-friendly regulatory environment. As an illustration of this, the FCA’s Regulatory Sandbox has provided a helpful tool in supporting early-stage businesses, both as a piece of regulatory engagement and as a marker of development when attracting external investment. We recommend the establishment of similar constructs across various industries where regulatory concerns often give pause to potential innovators who worry their work will run afoul of current legal frameworks.
When we consider the development of a market around digital assets, the UK has not been as quick as other jurisdictions to encourage the market or conduct projects utilizing new solutions such as distributed ledger technology. Therefore, whilst government stakeholders have taken a sensible stance in allowing development free from overburdensome regulation, the UK has still lagged behind several European nations, most notably Germany and Switzerland, in the application of these technologies. The commitment by the Bank of England that their renewal of the UK’s real-time gross settlement (RTGS) system will include API-enabled DLT interoperability is a welcome step. However, we believe that when the government leads from the front and deploys new technologies for its own use, the private sector will take encouragement from that and view the UK as a more friendly market in which to launch and grow businesses.
The government and the central bank also lag behind the most advanced nations with specific regard to stablecoins and central bank digital currency (CBDC). Many of the most advanced work done on this topic has been done using R3’s Corda, a technology that is being developed and supported by engineers and scientists based in London. However, despite the easy reach of the technology and expertise to the UK, greater advances are being made by the central banks of Sweden (through the Riksbank e-krona project), France (Banque de France’s wholesale domestic and cross-border work), Hong Kong and Thailand (Project Inthanon-Lionrock), Canada (Project Jasper) and several more. Given the pounds’ role as a reserve currency and the UK’s strategic interest in staying ahead of the curve, this is reason for concern and an example of the UK not making use of the talent it has at its disposal.
It is not yet clear how the UK plans to adapt post-Brexit to address the gap left in the total addressable market now that reaching the European market will require overcoming additional administrative hurdles to access. Many of our partners have raised concerns that they will be forced to leave the UK in order to take advantage of growth potential in the European market. This will prove a hinderance in incentivizing companies to choose London when selecting the best jurisdiction for their public listing.
Skills and Talent
One of the key reasons why the UK has been so competitive internationally has been London’s ability to attract global talent. A significant percentage of our London-based staff were born outside of the UK but have made London their home. To ensure this continues. an efficient, clear, and stable visa system is essential.
In the immediate term, we valued the government’s position and early communication that Brexit did not affect the status of EU citizens already in the UK, and this has undoubtedly assisted us in retaining staff and satisfying short-term recruitment needs. In the medium to long term, the UK government’s strategic positioning and promotion of itself across the world will be a factor in attracting global talent to all our London office.
The developer community, in particular, can be highly mobile, meaning that the UK cannot afford to be complacent if it wishes to retain these highly skilled individuals. Indeed, this risk applies to both maintaining UK’s attractiveness to foreign-born individuals and avoiding a brain drain of British talent to the USA or Europe. Maintaining a vibrant and innovative FinTech sector will not be possible without this workforce.1
When we consider the growth path for companies in our partner ecosystem, we believe that the UK provides good opportunities for seed funding but observe that it can get crowded out by funding opportunities available in other jurisdictions at later stages, particularly Series A & B. Attracting foreign investment can be healthy for a company because it can be seen as diversification of funding and potentially a pathway to a new market. If the UK wishes to retain companies as they grow, we believe that it will need to ensure that a vibrant domestic capital market continues to develop.
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