The Kalifa Review of UK FinTech is out today. Ron Kalifa, the former CEO of Worldpay, has overseen the production of a comprehensive and ambitious report. There’s way too many policies to unpick here, so I’ll just focus on just a few.

The UK already punches well above our weight in Fintech, representing 10% of global market share. So why should we focus on fintech when it’s already thriving? First, we have a proven comparative advantage here, which we should try to maintain. And second, we didn’t become a fintech hub (just) by chance. Of course, our deep history of financial services mattered, but so did innovations like the Financial Conduct Authority creating the world’s first regulatory sandbox.

One of the headline recommendations is the creation of a £1bn Fintech Growth Fund. According to the report, part of this could be seeded by UK private pension schemes. The report is right to highlight this. When I last looked at the data, public pension funds contributed 65% of the capital in the US VC market and 18% in Europe, but just 12% in the UK. The problem is a regulatory one, specifically with the 0.75% cap on annual charges for DC pension funds. With the right regulatory changes, a large Fintech Growth Fund, or another large fund for that matter, might be able to provide the scale to meet somewhere in the middle in terms of fees and get pension funds investing into growth companies.

The Kalifa review also calls for allowing dual-class structures, as seen on the NYSE, NASDAQ, Euronext, Deutsche Börse, the Hong Kong Stock Exchange and the Singapore Stock Exchange. As the report argues, this flexibility can be particularly attractive to founders who wish to raise funds but still retain control and guard against unwelcome take-overs. It also suggests reducing the need for 25% of its shares as a free float, perhaps copying the NYSE and NASDAQ, which impose value thresholds rather than a percentage depending on the market. The NYSE and NASDAQ made up 53% of total fintech IPO listings between January 2015 and December 2020. There are trade-offs, but this is something we have called for, with our Research Director Sam Dumtriu setting out the reasons succinctly in this article.

One thing I’m a little hesitant about in the review, however, is the call for the creation of 10 Fintech Clusters. It reminds me of the decision to have 10 Freeports, and the way that their location automatically becomes highly politicised. It’s worth pondering on the responses of Stian Westlake, Tom Forth and others to this Sam Gyimah tweet. Tom’s point that the locations might be better served by focusing on another industry that takes account of what they excel in is correct, I think. While there are notable outliers like Atom Bank, which is headquartered in Durham, it would take a lot to convince me that we have as many as nine hubs that can compete with London and the rest of the world for fintech companies.

There is much to recommend though – and I’ve not even mentioned the visa policies which regular readers will know is a bit of an obsession of mine. It’s a report that deserves to – and will – be taken seriously.

Capital losses
Our friends at Beauhurst have released the findings of their report on the mooted alignment of capital gains tax with income tax, which many of you responded to when we shared it here. It finds: 85% of founders would actively consider moving their companies abroad; 72% of angels would be less likely to continue investing into UK companies; and 84% of founders would be less motivated to build a large-scale business. You can read the report here.

Augar well
If you’re interested in education, and not yet subscribed, I can’t recommend James Croft’s Education Entrepreneurship Monthly newsletter enough. This month he covers everything from the Government’s response to the Augar review of post-18 education, its Further Education White Paper 'Skills for Jobs’, and Ofsted’s new report on remote education. Read it here and sign up here.