Much of the Spring 2020 budget[1] (the “Budget”) was dedicated to addressing the economic challenges presented by COVID-19, while the government also announced other short and long-term goals for protecting and bolstering the economy, including cash increases to the NHS and schools, attempts to “level the playing field across Britain”, and measures to protect citizens by bolstering the national living wage. This article examines the Budget announcements relevant to the world of fintech.

Budget proposals included increasing regulation, funding and review in different areas of the fintech sector, along with adjustments to the fintech sector to ensure the UK stays attractive to investors and new businesses, while encouraging the technology sector to flourish. Indeed the Budget supports the development of “high-tech, high-skilled jobs of the future” with a goal to cement the UK’s strong position in science and technology. Key announcements relevant to fintech are set out below:

Central Bank Digital Currencies

The Bank of England published a discussion paper in March 2020[2] on the advantages and disadvantages of having a central bank digital currency (a “CBDC”). CBDC is a concept which would allow the public to hold an electronic version of the central bank’s money reserves, something which currently only retail banks can do. Currently use of banknotes is the only method for individuals to use the Bank of England’s money. In theory, an advantage of CBDC is that individuals would have a level of anonymity (as with banknotes)[3] and the report investigates such issues in more detail. As the report had not been published when the Budget was announced out, the government stated they were “looking forward” to its publication and will continue exploring digital currencies, and the associated opportunities and challenges.

Cryptoassets

Financial institutions must meet certain standards established by the FCA when promoting or selling products to customers. The Budget stated that government also wants to consider whether cryptoassets should be regulated in a similar way.

The government also intends to consult later in 2020 on the broader regulatory approach to cryptoassets, including new challenges from “stablecoins”, a category of cryptocurrency designed to be less volatile than existing cryptocurrencies such as Bitcoin, which have fluctuated wildly. It is likely the government are seeking to investigate stablecoins specifically because they can be pegged against stable real-world assets – a novel concept for cryptocurrencies.

Review of the payments landscape

The government are launching a review to ensure payment systems are modern, fast and reliable. The government will lead a review into the infrastructure and regulation of payments, to make sure that the UK payments sector can remain world-leading amidst rapid technological developments. HM Treasury will be asking for evidence to help the government resolve existing issues in this area.

Open finance for SMEs

HM Treasury is planning to convene a summit to discuss the extent to which data access needs to be improved in order to facilitate quicker and easier access to credit for SMEs.  This will presumably look at interactions with or possibly enhancements to the existing open banking regime.

Digital identity unit

Certain challenger banks have developed software which allows users to verify their identities using a video and sign up without using any physical documents. The Government made it clear in the Budget that they are interested in such technologies in addition to the establishment of marketplaces where individuals can prove their identities without resorting to physical documents. This would make applying for bank accounts, mortgages and other financial products faster and more accessible to the public. Such developments are of interest to the government as making banking more accessible arguably results in a more inclusive society.

Affordable Credit Challenge Fund

The government wants to support alternatives to the problems associated with high-cost credit. The Affordable Credit Challenge Fund was set up (and subsequently delivered by Nesta) who ran a project between July 2019 to March 2020 offering funding to community lenders and fintech organisations to incentivise development of new solutions to increase access to affordable and responsible credit.[4] The winners of the challenge were announced in the Budget, with all three receiving £200,000 to develop their ideas. The winning entrants included:

1. Fair for You: A “school holiday buffer scheme” trying to solve food poverty by providing modest credit of under £100 to ease pressure in lower income family households through school holidays, when there is a spike in the use of high cost short term credit and foodbanks.
2. Police Credit Union: A not for profit set up to serve retired police officers/police staff and members of their households[5] who would normally not be able to access credit with a new reward loan. The reward loan will use Open Banking to monitor the borrower’s behaviour and dynamically reduce the interest rate they pay.
3. Capital Credit Union (in partnership with Nivo and Soar): The concept involves building a digital end-to-end member journey that will encourage more people to join credit unions. This solution will bring credit unions to new audiences, particularly financially excluded and younger people providing them opportunity to save and gain access to affordable credit.

UK Fintech on the global stage 

To ensure the UK maintains its leading global fintech status, the Budget proposes reviewing methods to support growth and competitiveness within the fintech sector. The review will be led by Ron Kalifa OBE, a non-executive for the Bank of England and Transport for London. The government want to make it faster and easier for SMEs to shop around for credit and will investigate what data is required to achieve this goal.

Fintech Delivery Panel

The government will extend funding for the Fintech Delivery Panel (industry experts from leading fintech start-ups and financial services. The panel will tour the UK to showcase the firms which panel members represent. The Fintech Delivery Panel is designed to develop initiatives that impact UK Fintech start-ups, helping them break into the fintech sector.

Finally, the Budget also launched the “Reforming Regulation Initiative” which invites ideas from business and the public on regulatory reform to ensure new regulations (such as the ones proposed for cryptoassets) are sensible and proportionate.

This is a welcome set of measures for the fintech industry, boosting stability and competition in what was arguably already a precarious moment because of Brexit, and is now more so in light of the coronavirus outbreak. This is also welcome because of the importance of the fintech industry itself in supporting and boosting the wider economy through turbulent times, not least through its capacity to improve digital access to the sorts of financial services (such as affordable credit and insurance) that will help individuals and small businesses through the troubled waters ahead.

 

[1] https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/871799/Budget_2020_Web_Accessible_Complete.pdf

[2]https://www.bankofengland.co.uk/-/media/boe/files/paper/2020/central-bank-digital-currency-opportunities-challenges-and-design.pdf?la=en&hash=DFAD18646A77C00772AF1C5B18E63E71F68E4593

[3] https://www.bbc.co.uk/news/business-51851523

[4] Kemp Little was appointed as the sole legal adviser to the teams in the Challenge

[5] https://policecu.co.uk/about/

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