Fintech and Cryptoasset Developments in the Budget

United Kingdom

On 11 March 2020, the Chancellor of the Exchequer, Rishi Sunak, set out measures the Government will take to support and develop the UK’s Fintech and Cryptoasset industries, which include the following four measures:

  1. FinTech review and delivery panel – the Government has announced a “major review” into the Fintech sector by Ron Kalifa OBE, a non-executive director at the Court of Directors at the Bank of England and vice-chairman of Worldpay. The City of London corporation will act as secretariat on the review. The review willidentify steps industry and government can take to support growth and competitiveness in the area, while ensuring the UK maintains its global leadership in the sector”. At this stage, further information has not been provided, but it is likely the review will focus on specific steps than can be taken by both the private and public sectors to create a more coherent and wide-ranging Fintech strategy in the UK.
  2. The Government will also extend funding for the Fintech Delivery Panel, with an additional £768,000 allocated between April 2020 and April 2022. The panel brings together industry experts and engagement managers to develop collaborative initiatives to positively impact domestic Fintech startups and accelerate their time to market. The Panel will visit the regions and nations of the UK (including the North East, Midlands, Wales and the Southwest) to engage with businesses and stakeholders across the country to collect feedback, highlight useful initiatives and encourage investment.  You can visit https://bit.ly/2W9hpuH for more information on the Fintech Delivery Panel.

  3. Digital currencies discussion paper – the Government noted it was awaiting and will carefully review the Bank of England’s discussion paper on a possible UK central bank digital currency (“CBDC”). In this way, the UK “will continue to take a leading role in exploring digital currencies, and the wide-ranging opportunities and challenges they could bring”. The paper is the first significant development since the Bank joined forces with the Bank of Japan, the European Central Bank (ECB), the Sveriges Riksbank, the Bank of Canada, the Swiss National Bank and the Bank for International Settlements (BIS) earlier this year to pool research and experiences in CBDC.
  4. Published yesterday, the discussion paper confirms that any CBDC would be denominated in pounds sterling and introduced alongside, rather than replacing cash and commercial bank deposits. The Bank has not yet decided on whether to introduce a CBDC. The paper notes that a CBDC presents several opportunities, but also significant challenges for maintaining monetary and financial stability; as such, the Bank intends to engage extensively on the benefits, risks and practicalities of doing so. As the basis for initial discussion, the paper highlights a possible ‘platform’ model where a CBDC would be treated like a digital banknote and be available to both businesses and households. The Bank requires written responses by 12 June 2020.

  5. Cryptoassets consultation – in an encouraging move for the area, the Government has confirmed it intends to consult on measures designed to bring specific cryptoassets into the scope of financial promotions regulation. Later in 2020, the Government intends to consult on the wider regulatory approach to cryptoassets, taking account of new developments and challenges including stablecoins.
  6. The precise scope of these consultations has not been confirmed, but it is likely they will focus on the extent to which cryptoassets can be integrated with the current regulatory landscape and changes needed to increase clarity, foster adoption / confidence and encourage development. The FCA published its Guidance on Cryptoassets in July 2019. The view of the time was that further clarity on issues such as the classification of various cryptoassets and their treatment or relevance for the purposes of the regulatory perimeter and customer protection would be welcome.

    It will be interesting to see how these proposed consultations approach and provide guidance on cryptoassets in the context of the financial promotions regime. Customer protection will remain paramount, and the FCA will likely seek views on specific expectations it has on how this can be achieved.

  7. Payments Landscape Review – HM Treasury, working alongside regulators and the Financial Policy Committee, is heading up a Payments Landscape Review to ensure UK payments infrastructure and regulation are keeping pace with rapid developments in technology. HM Treasury will shortly publish a call for evidence concerning additional measures that can be taken by the Government, industry and regulators to support more innovation and resilience in the UK payments sector.
  8. A key aim of the review is to ensure the UK’s financial services competitiveness; to encourage, not stifle innovation. Given the Budget’s clear emphasis on the UK strengthening its reputation as a leader in Fintech, it is likely that the upcoming call for evidence will focus on practical steps that the proposals that the FCA will put forward regarding the financial promotion of different types of crytpoassets can help facilitate adequate protection for consumers, businesses and the wider economy, while at the same time creating an attractive environment for Fintech innovation.

Comment

The overwhelming response of the Fintech industry to the Budget was positive. The Chancellor’s announcements were felt to be timely and reflecting and understanding of the needs, requirements and key focus areas of the sector. It will be interesting to see if this enthusiasm remains as consultations, reviews and particularly their results are rolled out.

This Budget serves as a clear indication that the Government is committed to making the UK the global leader in Fintech and related sectors. This emphasis interacts well with other initiatives including recent guidance on cryptoassets published by the FCA in July 2019, and the Bank of England discussion paper on a CBDC published yesterday.

The Budget suggests that the Government is keen to embrace the emphasis on technology, innovation and flexibility required if the UK is to carve-out a strong position in the post-Brexit financial services world.

Co-authored by Oliver Bridal.