Home Policy & Governance Smart data and open finance among UK sector’s priorities for Labour government

Smart data and open finance among UK sector’s priorities for Labour government

Labour landslide: newspaper headlines today (5 July) reflecting the scale of election victory achieved by the UK’s new government | Credit: Ian Hall

Reigniting legislation to encourage smart data and open finance are among the UK fintech sector’s priorities as the new Labour government gets to work after a landslide general election victory.

Sir Keir Starmer led the Labour Party to a widely expected triumph in yesterday’s (4 July) election, ending 14 years of Conservative Party rule.

Rachel Reeves has been named chancellor of the exchequer, with further ministerial appointments being announced one by one today (5 July). Fintech sector representatives are keen to get a handle on the new government’s priorities and plans.

UK trade association Innovate Finance said this morning that ‘in terms of fintech and financial services policy, in many respects we can expect to see continuity of policy direction, with perhaps an even greater drive to push forward reforms that can unlock economic growth, including making regulators support growth and innovation.’

‘Areas already identified as likely to be early priorities are open finance, regulatory innovation and increasing investment by institutional and individual investors in UK capital markets,’ it added.

RELATED ARTICLE ‘Labour wins landslide UK election victory’ – a news article (5 July 2024) from our sister title Global Government Forum

Sir Keir Starmer: the UK’s new prime minister posted on X (formerly Twitter) to say that the ‘work of change begins today’

Fintech: ‘big role to play in UK growth’

Congratulating the Labour Party on its victory, Innovate Finance’s chief executive Janine Hirt said that “fintech has a big role to play in UK growth”.

She described the UK sector as “a global champion, comprising over half the UK’s unicorn growth firms; a lynchpin of future successes, including cybersecurity, open banking, RegTech [regulatory technology] and data-based Net Zero solutions; and a critical driver of growth in the everyday economy, boosting productivity through more efficient payments systems and financial management and as the provider of more than 60 per cent of all lending to British small- and medium-sized enterprises.” 

Hirt added that the association and its members “look forward to working in partnership with Rachel Reeves and the new ministerial team to deliver their manifesto commitment to create the conditions to foster innovation and growth in financial services through supporting new technology, including open banking and open finance, and ensuring a pro-innovation regulatory framework.”

Before the election a Data Protection and Digital Information (DPDI) Bill – which would have provided the legal backbone for the rollout of smart data (data portability) programmes, and had been largely championed by many providers of fintech-enabled services – failed to make it through the ‘wash-up’ period (the final few days of a parliament before dissolution).

The Department for Business and Trade had published a ‘roadmap’ on 18 April showing how it planned to encourage the implementation of ‘smart data’ schemes across seven sectors of the economy, including banking and finance. The ‘The Smart Data Roadmap: action the government is taking in 2024 to 2025’ aimed to take advantage of the DPDI bill. In the run-up to the election Innovate Finance urged that the bill ‘must be a top priority for the next government’.

RELATED ARTICLE UK government publishes smart data ‘roadmap’ for seven sectors – a news story (19 April) on the above roadmap

‘On cusp of enabling smart data’

Dom Hallas, executive director of the Startup Coalition, a UK association that champions tech-based start-ups and scale-ups, wrote in a newsletter earlier today (5 July) that ‘like everyone we’ll be watching the moves over the next few days very closely to see what the first principles priorities when it comes to tech will be’.

In a ‘Startup Manifesto 2024’, published last month, the Startup Coalition stated that ‘the success of open banking, fuelling a £4bn [$5.12bn] UK fintech sector, both demonstrates what consumer innovation is possible with smart data – and how disparate and underused wider consumer data is across the economy.’

‘An economy enabled by smart data unlocks potential innovation across multiple levels – newcomers can put consumers in the driving seat of their data, competing on customer interface as well as core products,’ it said.

‘The UK was on the cusp of enabling smart data – but the DPDI bill that would have enabled it was a casualty of the election, never making it through Parliament’s wash-up. It is vital that the next government forge a path for smart data and ensure that startup success is not sacrificed on the altar of electoral chaos,’ the document urged.

Among other points, the document also encouraged the new government to ‘fix procurement and get innovation to the public’. It urged that ‘we need to build wider public sector capacity to buy technology, enable procurement processes to be more competitive, make effective pre-market engagement mandatory – and ensure procurement processes are faster across the board.’

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Regulatory Innovation Office planned

Labour’s election manifesto, published on 13 June, referred to financial services as ‘one of Britain’s greatest success stories’ but did not explicitly mention ‘fintech’.

‘Labour will create the conditions to support innovation and growth in the sector, through supporting new technology, including open banking and open finance and ensuring a pro-innovation regulatory framework,’ the document stated.

It described regulators as ‘currently ill-equipped to deal with the dramatic development of new technologies’, stating that Labour would create a new Regulatory Innovation Office, ‘bringing together existing functions across government’ and that ‘will help regulators ‘update regulation, speed up approval timelines and co-ordinate issues that span existing boundaries’.

Tackling fraud was also mentioned with Labour pledging to ‘introduce a new expanded fraud strategy to tackle the full range of threats, including online, public sector and serious fraud’. The party added that it would ‘work with technology companies to stop their platforms being exploited by fraudsters’.

There was also a pledge to ‘make the UK the green finance capital of the world’, with the document instead stating that a Labour government would mandate ‘UK-regulated financial institutions – including banks, asset managers, pension funds, and insurers – and FTSE 100 companies to develop and implement credible transition plans that align with the 1.5°C goal of the [2015] Paris Agreement’. The potential of innovative digital technologies in this area (‘green fintech’) was not explicitly mentioned.

RELATED ARTICLE UK Labour Party ‘embraces’ fintech in financial services ‘statement of intent’ – a news story (2 February) on Labour publishing six priorities as part of a ‘vision’ for the financial services sector

Six financial services priorities

As part of a ‘vision’ for the financial services sector published earlier this year (31 January), Labour identified six priorities including ‘embracing innovation and fintech as the future of financial services’. ‘Financing Growth: Labour’s Plan for Financial Services’ was described as the party’s ‘first statement of intent’ for financial services.

The six priorities were to: ‘deliver inclusive growth of the UK’s financial services sector’; ‘enhance the international competitiveness of the UK’s financial services sector’; to ‘reinforce consumer protection and financial inclusion’; ‘lead the world in sustainable finance’; ‘embrace innovation and fintech as the future of financial services’; and ‘reinvigorate our capital markets’.

‘The UK has historically led the world in fintech’, the ‘embrace innovation and fintech’ section (p18-p19) – which contained six detail-light commitments – opened, before warning that the country is ‘in danger of slipping behind when it comes to innovation in financial services’.

‘Our ground-breaking innovations in open banking and the [Financial Conduct Authority’s] regulatory sandbox have been copied by many jurisdictions. Our Consumer Credit Act is failing consumers and stifling innovation. It requires updating to provide an outcomes-based approach which is fit for the digital age. Now is the time to act,’ the document stated. ‘We must adopt a co-ordinated strategy to embrace new technology, enable a pro-innovation regulatory framework, and create the right conditions to support innovation and growth in the financial services sector.’

The commitments, described as the ‘first steps’ of Labour’s strategy, were: to ‘set international standards for the use of artificial intelligence (AI) in financial services’; ‘deliver the next phase of open banking to unlock the potential for increased competition in retail payments’; ‘embrace the potential of open finance to improve financial wellbeing’; ‘advance ongoing work to create a UK central bank digital currency’; ‘make the UK a global hub for securities tokenisation; and ‘establish a regulatory sandbox to test financial products to reach underserved communities’.

In respect of open banking, Labour has said that it supports the work of the Joint Regulatory Oversight Committee (JROC) – which is overseeing the design of a new organisation to succeed the Open Banking Implementation Entity (OBIE), which was established in 2016 to get open banking off the ground. In respect of open finance, it stated that a Labour government would ‘work with regulators and industry to develop the roadmap for open finance to prove its value and fulfil its potential to improve individuals’ financial wellbeing.’

RELATED ARTICLE 
UK Labour Party backs fintech sector as market uncertainty bites – a news story (13 October 2022) on then-shadow City minister Tulip Siddiq setting out Labour’s commitment to supporting the fintech sector (and highlighting ways that fintech solutions can help improve financial inclusion) during a keynote speech

Aspirations and commitments

In respect of the potential launch of a UK central bank digital currency (CBDC), the document published by Labour in January stated that the party ‘recognises the growing case for a state-backed digital pound to protect the integrity and sovereignty of the Bank of England, and the UK’s financial and monetary system’. It stated that Labour ‘fully supports the Bank of England’s work in this area, and wants to ensure that issues such as threats to privacy, financial inclusion and stability are effectively mitigated in the design of a central bank digital currency’.

The Bank of England and HM Treasury set out the next steps in the development of a potential UK CBDC in January. This included increasing ‘structured engagement’ with external experts and the launch of what is a billed as a ‘national conversation’. A decision has yet to be made to actually launch what Starmer’s predecessor as prime minister, Rishi Sunak, once dubbed ‘Britcoin’.

In respect of the hot topic of tokenised finance, the document stated that a Labour government would ‘look to make the UK a global leader… by advancing work to clarify the law around tokenisation, and working with regulators to establish a proportionate, outcomes-based regulatory regime to oversee the technology.’ It went on to state that Labour ‘will advance the initial progress to introduce the financial market infrastructure regulatory sandboxes to work out the regulatory bottlenecks for tokenisation and will explore the possibility of a pilot issuance of tokenised gilts via the Debt Management Office to test the impact of the technology and create the demand for tokenised assets.’ It added that a Labour government would ‘also look to develop partnerships with other financial centres to establish interoperable standards and enable trade of tokenised assets across borders.’

It also stated that a Labour government would ‘ask the FCA and PSR [Payment Systems Regulator] to evaluate the potential to stand up a new regulatory sandbox [test space for innovative products] to encourage development of innovative products to reach excluded and underserved consumers.’

‘Other jurisdictions including Ghana, India and the United Arab Emirates have stood up sandboxes with a particular focus on financial inclusion to deliver better outcomes for consumers,’ the document explained. It adds: ‘Labour will direct the regulators to also explore a post sandbox roadmap to support participants in receiving regulatory authorisation to bring their products to market.’

RELATED ARTICLE UK fintech’s centre forward: a fireside chat with Ezechi Britton – a write-up of a fireside chat at the Global Government Fintech Lab 2023 with the chief executive of the Centre for Finance, Innovation and Technology (CFIT)

CFIT’s Britton: ‘optimistic’

Ez Britton, chief executive of the Centre for Finance, Innovation and Technology (CFIT), said today (5 July) in a post on X (formerly Twitter) that he and colleagues were “optimistic about the new government’s commitment to innovation in financial services and combating economic crime”.

“We look forward to joining forces with the new ministerial team to foster growth in financial services, create and secure a more resilient financial ecosystem and drive the UK fintech sector to new heights,” Britton said.  

CFIT launched in February 2023 following a recommendation in the HM Treasury (HMT)-commissioned Fintech Strategic Review, led by Ron Kalifa OBE, that concluded in 2021. HMT and the City of London Corporation, the public authority for the Square Mile – the part of London where many fintech companies, as well as major financial services institutions, are located – committed respectively £5m and £500,000 (£5.5 million total: about $6.84m) of seed funding over three years to launch the centre.

The body is bringing together time-limited ‘coalitions’ of experts to address challenges facing the UK fintech sector and devise solutions. Its first coalition focused on open finance and developed use-cases, with a focus on improving ‘credit decisioning’ for small firms and automating debt advice services for consumers. It published a 46-page report earlier this year (‘CFIT Open Finance Blueprint’). Its second coalition was announced less than a month ago (10 June) and is focused on ‘fighting economic crime through enhanced verification’.