What’s next for UK fintech under the new Labour government?
After six weeks of debates, controversies, and bungee jumping, the UK general election came to a close on 4 July with Keir Starmer and his Labour Party achieving a landslide victory over the incumbent Conservative Party led by Rishi Sunak.
What direction will the new Labour government steer the UK’s fintech sector?
However, one of the criticisms of Labour’s steady campaign was how tight-lipped they were on several topics, with the party’s manifesto described as being “remarkable in its complete lack of ambition” by Beth Winter, who was most recently the Labour MP for Cynon Valley.
One such area was fintech, leaving many in the industry wondering: what will the future UK fintech landscape look like under Labour, and what areas will (or should) the new government focus on?
What has been promised?
Outlined in its manifesto, Labour has made a number of promises around how it will “kickstart economic growth”, including “driving innovation”.
A hot topic during the election was Britain’s future relationship with AI. The Conservatives frequently highlighted the advancements made during their tenure, while Labour announced plans to create a National Data Library to consolidate existing research programmes and eliminate barriers to building new data centres.
Another key area in Labour’s manifesto was funding. The party pledged to “scrap short funding cycles for key R&D institutions”, opting for ten-year budgets. They claim this approach will facilitate “meaningful partnerships with industry to keep the UK at the forefront of global innovation”.
Finally, in response to regulators being “ill-equipped to deal with the dramatic development of new technologies”, the UK’s new governing party has promised to create a new Regulatory Innovation Office. This new department will assist regulators in expediting approval timelines, coordinating issues that cross existing boundaries, and updating regulations.
Within the new office’s remit will be monitoring the “safe development” and use of AI models by introducing “binding regulation on the handful of companies developing the most powerful AI models”.
What areas will Labour focus on?
When examining Labour’s manifesto, what was apparent was a “lack of tech policy”, particularly around “promoting technological advancement”, states Barry O’Donohoe, co-founder and CEO of UK tech firm Raidiam.
This sentiment is shared by many in the industry, begging the question of what Labour should prioritise when advancing fintech during its term.
We at FinTech Futures thought it best to seek insights from those the new government’s decisions will directly impact.
Here’s what they had to say…
Harnessing AI
Lord Holmes believes the UK needs an “AI Authority”
Starting with someone who will be looking to influence the future direction of the UK fintech sector from within the halls of Westminster, we spoke with Lord Chris Holmes, a member of the House of Lords and the Democracy and Digital Technologies Select Committee.
Holmes suggests that controlling and harnessing AI should be at the top of the agenda for Labour, and urges the powers that be to adopt all of the principles and clauses set out in his AI Regulation Bill, which fell as a consequence of the calling of the election.
“If we are to thrive with AI in the UK, not least in fintech, we need an AI Authority to be the nimble regulator, right-sized, the custodian of the principles, not least trust and transparency, interoperability and an international focus, accessibility and accountability.
“An AI regulator to take a horizontal view across all existing regulators to assess their competencies to address the challenges and opportunities from AI. This would strengthen our FS [financial services] regulators as they could benefit from the expertise of such a horizontally focused regulator enabling them to concentrate on the specific FS challenges in their regulatory domain.”
Moreover, Holmes identifies that “digital ID is such an essential aspect of future finance”.
“If we want to win when it comes to tokenisation, Web3, and a well-regulated crypto space, digital ID could be such an enabler.”
Open banking
Furthering the growth of open banking is a common priority for UK fintech leaders. Independent industry body Innovate Finance has set out an action plan for the new government which strongly suggests prioritising “the next phase of delivering open banking”.
Labour has an opportunity to “foster a thriving fintech ecosystem”
The organisation has proposed that Labour “promote public sector adoption of open banking” and “adopt the Smart Data statutory powers that ministers need in order to make open banking work effectively”.
Additionally, Chris Michael, CEO of Ozone API, a UK-based open banking tech provider, believes that “as we extend open banking into open finance and ultimately the open data economy, one of the big challenges is that more and more regulators must be involved”.
“It’s great that we’re seeing more support across government, but policy gridlock has so far held it back.”
He suggests the new administration should just establish “one body to take responsibility” moving forward.
Improving SME access to cash flow
Sinead McHale, CEO of Satago, says that the government needs to address the needs of small and medium-sized enterprises (SMEs), which she calls “the heart of the UK economy”.
“SMEs continue to grapple with challenges around profitability and long-term growth plans, with limited access to finance and late payments persisting from larger corporations.
“SMEs need further support from the new government, such as stricter penalties for late payments from larger companies and incentivising prompt payment practices.”
McHale concludes by advising that increased fintech/bank collaboration will help SMEs adopt “more sustainable cash flow management practices”, citing invoice financing as an example of how such collaboration can help smaller businesses build resilience and improve access to capital.
Concluding thoughts
There is no shortage of pressing issues for Starmer’s new government to tackle, whether that’s sewage in the waterways or the ongoing cost of living crisis.
However, it’s clear that in advancing fintech and financial services, Labour has a prime opportunity to further what it calls “one of Britain’s greatest success stories”. This is an opportunity Labour must seize for both political advantages and broader economic benefits.
Labour kept its cards close to its chest throughout its election campaign, but now is the time to see what direction it wants to take UK fintech.
As PayU GPO’s CEO Daniel Cohen puts it: “A government supportive of technological innovation and digital financial services can foster a thriving fintech ecosystem. Conversely, a government that enacts restrictive regulations can stifle innovation and hinder growth.”
