Regulatory approvals for fintech firms plunged to fresh lows in 2022, the Standard can reveal, as the UK’s financial watchdog mounted a draconian crackdown on London’s fintech sector.
The approval rate of applications for Electronic Money Institution status, required for processing digital cash payments, fell to just 8% in 2022, figures obtained from the Financial Conduct Authority via a Freedom of Information request show, amounting to just 33 approvals. That compares to an approval rate of 90% in 2018 and a rate of 47% in 2021.
Just seven applications were approved in the first quarter of 2023, the FCA said, in signs fintech firms face a near-impossible pathway to getting regulatory clearance to operate in the UK.
Industry insiders told the Standard a combination of poor staffing levels and regulators spooked by the recent spate of crypto firm collapses have contributed to the fall in approvals.
Seb Wallace, investment director at venture capital firm Triple Point, told the Standard the drop in approvals was a “sad reflection” of problems at the FCA.
“The presumption should be towards enabling success in the application process rather than being sceptical and hostile to put people off applying and reduce the FCA’s workload,” he said.
“It drives capital intensity up and makes businesses less attractive for funding. One has to question how long this can go on for before it impacts competitiveness.”
It comes as investment into UK fintech has slumped by more than a third in the latest sign of challenging conditions facing the sector.
A total of $2.9 billion was invested across 199 deals in the UK in the first six months of 2023, a drop of 37% compared to the last six months of 2022, according to a report by Innovate Finance. That is a much steeper decline than the 14% drop in total capital invested in Fintech globally.
Of those 199 deals, 111 worth $2 billion took place in the first quarter, while a further 88 deals took place in the second quarter representing $864 million, in signs investment is continuing to slow.
Major players in the sector have sounded the alarm over the threat posed by regulatory delays and clampdowns to the global competitiveness of UK fintech.
In May, the CEO of fintech giant Revolut, which has been waiting for more than two years to secure a banking licence, said he wouldn’t consider a listing in London because it “is not the business environment to operate in the modern world,” while the founder of fintech Thought Machine, Paul Taylor, warned there was “deep frustration” in the sector.
“When the challenger banks got started, the view was the UK regulators were very encouraging of new entrants to the market and challenger banks, which is why Monzo and Revolut got a very clear path to their initial licences, to such an extent that some of the incumbents felt it was unfair,” Taylor told the Standard.
“But now it certainly has changed. There’s not this pro-technology company view of the regulators and they have become more bureaucratic and cautious… they’re just too slow and it takes months if not years to get answers to questions. People are a bit fed up.”
Tom Graham, Managing Director in Accenture’s Banking practice, said: “The 2010s saw a wave of successful fintech applications, with neobanks leading the charge.
“But more recently we have seen some slowdown in ‘full’ deposit taking banking license applications. The cost and complexity of compliance has made some fintechs question whether they need a full banking license to achieve their business goals.
“Instead, a number are making use of the emoney regime or effectively ‘borrowing’ someone else’s license as a way to deliver financial services for consumers.”
