By Adnan Chowdhury on Thursday 27 October 2022
Trussenomics didn’t work. Sunak must stabilise the economy, but not be afraid to challenge the status quo, writes Wise's Adnan Chowdhury.
Monday saw the latest update to the UK's political landscape, as former Chancellor Rishi Sunak became Prime Minister. Following months of chaos, Sunak will certainly have an unenviable to-do list to work through, with economic crises and the cost of living front of mind.
But central to his objectives is the need to stimulate growth. Many businesses in the UK, and many fintechs too, are hamstrung by current policy.
As Chancellor, Sunak pushed the crypto agenda, wanting to make the UK a global hub for this emerging technology - but he must ensure that existing rules and regulations are also challenged, in order for fintech innovations to be supported.
There are a few policy areas which Sunak could seek to revolutionise in order to support UK fintechs.
1. Open up access to overnight reserves at the Bank of England
Overnight access reserves at the Bank of England is currently only available to banks. By expanding this out to large e-money institutions (EMIs), consumers could benefit hugely from the results.
Firstly, it would allow EMIs to directly manage liquidity and settlements faster for customers. This helps firms to be robust, particularly those with a focus on international money movement given FX management.
Second, it would help to reduce the risk profile of large fintechs, who currently rely on institutional banking partners who, in theory, could go bust. By managing an overnight reserves account with the Bank of England directly, many EMIs can remove this risk.
2. Allow EMIs to become FSCS accredited
FSCS protection is a mark of trust. It lets consumers know that, if the worst happens and their financial provider becomes insolvent, their money is protected up to £85,000. It’s reassuring, and lets customers know their cash is protected even while in their bank.
But the current rules only allow the FSCS to protect the money people hold with banks, building societies and credit unions, meaning e-money institutions don’t get the same coverage.
Currently, EMIs must safeguard the money held by customers at a trusted third-party bank. But customers want protection they recognise and a name they can trust. By and large, the average person doesn’t understand what ‘safeguarding’ is. It can hinder growth, as customers choose providers they recognise as safe, even if they might not best suit their needs.
In addition, safeguarding rules were created for smaller, new entrants to the market, and did not account for firms who grow to a significant enough size to become systemically important domestically.
The Government should consider allowing EMIs of a large enough size to switch from safeguarding to deposit holds and be FSCS credited. This would truly unleash competition between EMIs and banks in Britain.
3. Open Banking ‘sweeping’ payments should include international transfers
Variable Recurring Payments (VRPs) will significantly change and improve how people manage and move their money in the UK as adoption increases.
Current rules allow ‘sweeping’ VRP payments - those sent between two accounts held by the same person - to be done at no cost, domestically.
The aim is to boost competition between providers, who will battle it out to hold customer funds.
However in a post-COVID world where more and more people are working remotely, many use more than one currency to live their lives.
Sweeping payments should be expanded to include international payments, for those who live international lives.
Restricting the scope of sweeping to domestic payments only simply serves to protect the larger, incumbent banks in maintaining much of the status quo, and fails to create a competitive environment for the innovative fintech sector.
This is not the objective of the open banking remedy, which was designed to combat exactly this issue. Sweeping should look to remove friction and potential barriers to entry, not enable them. We need to get this right as the UK starts its Open Banking journey, or risk stifling its promise forever.
Rishi Sunak may be viewed as a safe pair of hands tasked with bringing the government back towards fiscal responsibility, but he must recognise the significant growth potential of the UK fintech sector, and make bold decisions to support it.
We need to see him challenge the status quo.
Only then will the Government live up to its original promise to make Britain “the best country in the world to start and grow a (fintech) business”.
The views and opinions expressed are not necessarily those of AltFi.