Home Policy & Governance UK Labour Party ‘embraces’ fintech in financial services ‘statement of intent’

UK Labour Party ‘embraces’ fintech in financial services ‘statement of intent’

‘Financing Growth - Labour's Plan For Financial Services’: the 28-page publication includes a two-page focus on fintech-related priorities | Credit: Squirrel_photos (Pixabay) and screenshot (inset) of Labour Party publication

The UK’s opposition Labour Party has published six priorities including ‘embracing innovation and fintech as the future of financial services’ as part of a ‘vision’ for the financial services sector.

The next general (national) election in the UK, governed by the Conservative Party for the past 13 years, is expected to take place later this year and must be held by 28 January 2025. Labour, led by Sir Keir Starmer, are sustaining double-digit percentage point leads in opinion polls.

‘Financing Growth: Labour’s Plan for Financial Services’ is described as the party’s ‘first statement of intent’ for financial services and is published as it seeks to appeal to the City of London and business-owners across the country.

The six priorities are 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’.

Shadow chancellor Rachel Reeves and shadow economic secretary to the Treasury Tulip Siddiq describe the 28-page report, in its foreword, as the ‘first stage in outlining Labour’s vision for the future of Britain’s financial services, and reflects hundreds of conversations held with financial services firms, consumer groups and other FS [financial services] stakeholders since 2021.’ The ‘agenda will continue to develop’, they add.

RELATED ARTICLE UK Labour Party backs fintech sector as market uncertainty bites – a news story (13 October 2022) on 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

Six fintech-related commitments

Six rather detail-light commitments under the ‘embrace innovation and fintech’ heading can be found over two pages of the document, pubished this week (31 January). ‘The UK has historically led the world in fintech’, this section (p18-p19) opens, 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 section declares. ‘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, are: 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 the hot topic of AI, Labour is ‘currently developing its AI strategy to lay out how we will set clear standards for AI safety and adopt an agile approach to regulation so that the technology can be utilised by FS firms and other organisations to boost growth in every part of the economy’.

In respect of open banking, Labour states that it supports the work of the Joint Regulatory Oversight Committee (JROC) – announced almost two years ago to oversee 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, 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 government sets out next steps towards ‘Digital Securities Sandbox’ – a news story (28 November 2023) on the government announcing the next steps towards the launch of a financial market infrastructure sandbox – named the ‘Digital Securities Sandbox’ (DSS) – in its response to a consultation (the sandbox is being created to help UK financial markets to adopt digital asset technology)

Tokenisation ‘global leadership’ aspiration

In respect of the potential launch of a UK central bank digital currency (CBDC), the document states that Labour ‘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 states 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 just last week. This includes 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 current prime minister Rishi Sunak dubbed ‘Britcoin’ in a tweet in April 2021 (when he was chancellor).

In respect of tokenisation, the document states that a future 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 goes 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 adds that a Labour government ‘will also look to develop partnerships with other financial centres to establish interoperable standards and enable trade of tokenised assets across borders.’

In respect of a new regulatory sandbox (test space for innovative products), a Labour government ‘will ask the FCA [Financial Conduct Authority] and PSR [Payment Systems Regulator] to evaluate the potential to stand up a new regulatory sandbox 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 explains. 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) – a UK body whose creation was recommended by the Kalifa Review (see below)

First general election since Brexit

Numerous further parts of the document outside the fintech-specific section will likely interest those with an interest in fintech.

For example, the document refers to the planned creation of a ‘national financial inclusion strategy.’ This would be ‘designed and implemented by a committee chaired by a Treasury minister with representation across government, regulators, arms-length bodies, civil society and industry [that] will co-ordinate work across the public and private sectors, including working with the Department for Education to increase access to financial literacy education in schools and colleges.’

It adds that ‘digital inclusion is also a critical enabler for financial inclusion, and the committee will consider how government and industry can support the 3.9 million digitally excluded individuals.’

The general election will be the first since the UK left the European Union (EU) in January 2020 (‘Brexit’). ‘In the aftermath of the Global Financial Crisis [2007-2009] and Brexit, FS firms have grappled with significant changes in the policy and regulatory environment, most recently driven by the failure of the government to prioritise the interests of the sector in its negotiations with the European Union,’ the document asserts, stating that a Labour government would ‘adopt a more pragmatic and co-operative approach to working with the EU in areas where it is mutually beneficial.’

The document name-checks 10 individuals who, it states, comprised an ‘advisory panel who have acted in a personal capacity to provide invaluable support for this financial services review’. The list (which Global Government Fintech reproduces below) includes Ron Kalifa OBE, the former chief executive of international payment processing company Worldpay who led the HM Treasury-commissioned study – the Fintech Strategic Review (which became known as the ‘Kalifa Review’) – that presented its conclusions almost three years ago. The review warned that while the UK’s relative leadership position in fintech was ‘well established, its future is not assured’ and that fintech’s trajectory had hit ‘inflection point of opportunity – and risk’.

UK Labour Party financial services review advisory panel

  • Susan Allen chief executive officer, Yorkshire Building Society
  • Sir Douglas Flint chair of abrdn (formerly Standard Life Aberdeen), IP Group and UK Digitisation Taskforce
  • Nigel Higgins group chair, Barclays
  • Sir John Kingman chair, Legal & General Group
  • David Schwimmer chief executive officer, LSEG
  • Dame Elizabeth Corley chair, Schroders and Impact Investing Institute
  • Anne Glover chief executive and co-founder, Amadeus Capital Partners
  • Sir Ron Kalifa senior independent director, Bank of England and author of Kalifa Review of UK Fintech
  • Charles Randell member of Financial Inclusion Commission and former chair of the Financial Conduct Authority (FCA)
  • Shriti Vadera chair, Prudential

Source: p6 ‘Financing Growth: Labour’s plan for financial services’ (31 January 2024)