Andrew Griffith/HM Treasury
The Edinb-urgh Reforms… a year of missed opportunities for fintechs
Twelve months on from the launch of a series of financial services reforms aimed at spurring innovation much work needs to be done, writes Luke Kosky
After a year in which we traded two Treasury Select Committee Chairs, three Prime Ministers, four chancellors and fourteen Treasury ministers, 2022 went out with a bang for Financial Services.
The ‘Edinburgh Reforms’ landed just before Christmas last year, to make the UK the most innovative and competitive global financial centre. It was an ambitious package that the industry, including us, billed as a boon for fintechs.
A year on though, and the pile-up of government interventions announced in the Reforms has only crept along.
While (then) City Minister Andrew Griffith promised “2023 is proving to be a banner year for reforming our financial services”, in reality, the bang of the Edinburgh Reforms has fizzled out, plagued by slow consultation, complexity and missed opportunity.
Indeed the Treasury Select Committee has concluded that “none of the achievements to date will make a substantial difference to the UK economy”.
As we look towards an election year, many fintechs may be waiting even longer for meaningful change.
Crucially, we have seen some marked successes, including the landmark Financial Services and Markets Act which gained Royal Assent in June. A major success of the Act was to introduce a new, secondary objective for the FCA and the PRA to promote the growth and competitiveness of the UK economy.
Additionally, a new Digital Securities Sandbox was given legislative footing and has subsequently been consulted on, with 19 firms expressing interest so far. Further, the first steps of transitioning EU law to UK law post-Brexit has also progressed through the FSM Act, though the actual transition will take years.
The Getting There
Many of the objectives in the Reforms are complex, and there is a necessary consultation period to go through. Critical elements including review of Solvency II, the introduction of a “Digital Pound”, and reform of the Consumer Credit Act fall into this category, with many questions asked, but few answers offered.
The last of these is particularly pressing: reform of consumer credit regulations will be complex but is urgently required, as the painstaking process of BNPL regulation demonstrates. The Treasury has tried to build a bespoke regime on the decrepit Consumer Credit Act, and BNPL remains unregulated as a result.
There is no doubt that the Reforms were ambitious, meaning the iterative progress is inevitably slow. The Treasury has set out to do a lot: indeed, over the next two weeks before Christmas we are supposed to see three final statutory instruments published.
However, some of the Reforms’ stated objectives were doomed from the start due to a lack of joined-up thinking.
For instance, the new rules to counter the awful scourge of authorised push payment scams enabled by powers in the Act may inadvertently kill off innovative payment technologies like Open Banking.
Further, efforts to safeguard the provision of cash in the Act did not recognise the connection to rising fees on card payments, meaning retailers as well as consumers are impacted by an uncompetitive payments sector.
Meanwhile, the Treasury Select Committee’s review also suggested that many of the measures will not constitute meaningful reform in of themselves, but instead tee up opportunities for the future.
Finally, yet another example of a missed opportunity in the last twelve months has been the stagnation of Open Banking. This £4bn Fintech sector is part of a phenomenon used by over seven million UK consumers and was once the envy of the world, inspiring copycat regimes across five continents.
This lead has been all but eroded after twelve months of working group after working group, leading the Chair of the Treasury Select Committee to suggest that “anti-competitive forces” may be engaged in “simple sabotage” of the initiative.
We welcomed the ambition to legislate for open finance in the November Autumn Statement, as well as the continued passage of the Data Protection and Digital Information Bill, where the powers to do so will be delivered.
But we cannot hide the fact that twelve months on from the Edinburgh Reforms, we are no closer to realising the true potential of Smart Data in financial services.
We have made baby steps, and many ambitious reforms have begun, but there is much work to be done in 2024 to realise the goals of the Edinburgh Reforms.
The Government must lend its support to the regulators and we must hit the ground running from January. Thank goodness we’ll have a quiet year to get on with it.