Chancellor Rishi Sunak has unveiled some of the Government’s plans for supporting the UK fintech sector and ensuring that the UK remains “at the cutting edge of digitalising financial services”. These include setting up new sandboxes and a taskforce to explore creating a UK central bank digital currency.

Picking up from Kalifa

Last year the Government commissioned an independent review into the fintech sector. The outcome of the Kalifa Review was a detailed report, published in February 2021, which made wide-ranging recommendations aimed at ensuring the UK retains its position as a global leader in fintech. Speaking at UK Fintech Week and confirmed via a Government press release, the UK Chancellor has now indicated that certain of those recommendations are going to be taken forward, together with other fintech-focused initiatives. The Government also intends to provide a more detailed response to the Kalifa Review shortly.

Fintech-specific proposals

New sandboxes

Building on the success of the FCA’s regulatory sandbox, the Government has announced plans for no fewer than three new “boxes”.

• A new “scale box” – led by the FCA – to support firms beyond the initial start-up stage. Several of the recommendations from the Kalifa Review were aimed at this stage of development.
• A second phase of the Digital Sandbox – led by the FCA – which will focus on tackling sustainability and climate change-related challenges. The first phase, which is currently being piloted, is looking at issues arising from Covid-19.
• A new DLT sandbox – delivered by HM Treasury, working with the Bank of England and FCA – for exploring how to use distributed ledger technology to improve financial market infrastructure. This echoes similar EU plans for a DLT-specific sandbox.

Taskforce on CBDCs

A new taskforce comprising HM Treasury and the Bank of England will explore creating a UK central bank digital currency. This work follows the Bank of England’s discussion paper on CBDCs for retail use.

No decision has yet been made on whether to introduce a CBDC in the UK but the taskforce will explore the potential opportunities and risks for doing so and evaluate different design features. It will also be responsible for monitoring international CBDC developments.

The views of technical experts and key stakeholders, including financial institutions and consumers, will be sought via two external engagement groups: the CBDC Technology Forum and the CBDC Engagement Forum.

In a sign of the investment being put into exploring CBDCs, the Bank of England has announced that it will establish a new division to lead its work in this area. The new CBDC Unit will be overseen by Deputy Governor for Financial Stability, Jon Cunliffe.

Other proposals

The Chancellor has backed the Kalifa recommendation for an industry-led Centre for Finance, Innovation and Technology. The idea is that CFIT would work closely with regional hubs to support fintech growth across the UK.

The Chancellor also mentioned the Bank of England’s new policy for omnibus accounts. This is intended to support faster settlement of wholesale payments using central bank money. Separately HM Treasury is due to release its plans for improving the UK’s payments infrastructure following a call for input in 2020.

Other reforms in the pipeline

As well as initiatives from the Kalifa Review, the Chancellor has said that proposals from a recent review of the UK’s listings rules will be taken forward. This includes consulting on the UK’s prospectus regime in summer 2021 and convening a group of experts to look at how rights issues could be made more efficient, including the role of technology in the process.

The Chancellor has also announced plans to consult on a series of reforms to the UK’s wider capital markets regime in summer 2021. The consultation will include proposals to remove the share trading obligation and double volume cap from the UK MiFID framework. 

Visit our future regulatory framework webpage for more on the Government’s programme of work to shape the future of financial services regulation in the UK.