The passage of the Financial Services Bill through Parliament has happily coincided with a renewed focus on FinTech after the Kalifa Review’s publication in February.
In the House of Lords, I took the opportunity to raise what I see as some of the biggest problems relating to financial services, and to position some of the transformational technologies that could provide answers.
The Bill itself covers a number of areas, with welcome changes in the UK’s prudential and regulatory rules. What I believe is missing is greater consideration of two big themes in financial services today: financial inclusion, and the power of innovative technologies to change the industry.
The focus of financial inclusion is to provide products and services that meet the needs and circumstances of all. Someone might be considered financially excluded if they do not have access to mainstream financial services such as a bank or current account, or if they are forced to pay the “poverty premium” for such services. It is deeply unfair and a pernicious blight on our society.
There’s a great deal that FinTech can do to solve some of the specific problems of exclusion, whether it is through alternative credit scoring, helping people save, and offering more targeted services for the less well off.
In the amendments I submitted, I argued that the FCA and Bank of England should have objectives that aim to improve financial inclusion in the UK. The thrust of the change would be for the FCA to require authorised entities to report on what steps they are taking to tackle exclusion and what particular products or services they are providing to practically address the issue.
I believe that both organisations have a really important role here. If they are given specific objectives, such as tracking and reducing the number of unbanked people in this country, then it will provide much more focus on the issue of exclusion. And by involving all the constituent parts – the Bank of England, the FCA, and authorised firms – each with a financial inclusion objective, it reduces the risk of the pressing issue falling through the cracks. With the right data and right technology, you could have a much clearer picture of exclusion in real time. Armed with this insight, the industry could be much more dynamic and targeted in its response.
Financial exclusion isn’t just about consumers of course. It affects small businesses too. Small firms not being able to access the capital or lines of credit that they need has been an issue for decades. It is well-recognised that this has become more acute since the Great Recession of 2008. We can’t ignore this piece of the puzzle. SMEs are so intrinsically tied to the economic health of the UK that we have to sharpen our focus on providing better access to capital to them.
With this in mind, I submitted an amendment calling for the creation of a system of regional mutual banks across the UK. This kind of model has worked extremely well in countries like Germany. That’s not to say we should copy and paste from other countries, but we should investigate how regional mutual banks have worked elsewhere, what principles guide them, and ask if something like this can work well in the UK. The regional focus ties in with the levelling up agenda and community-led growth through clusters.
There is so much potential for the use of innovative technologies in financial services. I made this point during the debate by considering the role of AI, DLT, CBDCs and Digital ID. We have a real opportunity to put these technologies into action. To help with this process, I suggested the creation of a centre for applied innovation in financial services – a not dissimilar concept to that recommended in the Kalifa Review. My vision is for this centre to be a place where public policy problems can be paired with private sector solutions.
If we get this right, FinTech will play a key role in the totality of financial services. This industry has to be about enabling, empowering, and unleashing individual and business potential, rippling through the whole country. There is so much that FinTech has to bring to bear to help the UK grow its way to prosperity. I hope in 2021 we can start to realise the power of FinTech.
*Lord Chris Holmes has written about the detail of each amendment to the FS Bill on his blog at LordChrisHolmes.com