As Covid ‘Freedom Day’ approaches, financial markets must adapt to the new realities. So too must the Financial Conduct Authority (FCA), as the market regulator. The new dawn will not simply mean a return to business as usual. The FCA’s new business plan, published today, creates some clear guidelines in navigating the still-choppy economic waters.

Better outcomes for consumers and ensuring market integrity will be the key cornerstones in the FCA’s new approach.

Cicero/amo has prepared an overview of the FCA’s new Business Plan, detailing seven key priorities, the impact it will have across different sectors within the financial services industry, and analysing FCA CEO Nikhil Rathi’s comments at a webinar launching the Business Plan. We do hope you find this insightful.

Click here to access Cicero/amo’s overview of the FCA’s Business Plan 2021/22.

The European Commission published its Strategy for Financing the Transition to a Sustainable Economy yesterday, setting out its plans for the next two years. The new strategy builds on the 2018 Sustainable Finance Action Plan, with the Commission aiming to develop new tools and expand existing ones so as to integrate ESG considerations in decision-making throughout the financial services marketplace.

Cicero/amo has prepared an overview of the strategy, highlighting key upcoming actions relevant for the majority of financial market participants.
Click here or scroll down to access Cicero/amo’s overview of the EU’s latest sustainable finance strategy.

The National Economic Recovery Plan is a €1bn plan which was signed off by the Irish Cabinet on Tuesday 1st June, having been agreed in principle by Taoiseach Micheál Martin, Tánaiste Leo Varadkar, and Leader of the Green Party, Eamon Ryan, on the evening of the 31st of March.

The National Economic Plan is part of a commitment in Ireland’s Programme for Government and was originally expected to be published in October 2020. The dual challenges of Brexit and the COVID-19 pandemic, however, delayed its publication. The Plan is the most recent medium-term economic plan in eight years. Before its publication, the most up to date plan was “A Strategy for Growth” which was published in 2013.

The National Economic Recovery Plan is also being published alongside the submission of Ireland’s National Recovery and Resilience Plan for submission to the European Commission which took place on 28th May 2021. Both plans closely align with the review of the National Development Plan (NDP) which is currently underway. Phase one of the NDP has been published and phase 2 is expected by Q3 2021.

The National Economic Recovery Plan is based on four pillars:

1. Ensuring public finances are sustainable for a lasting recovery.
   
2. Helping people back into work by extending labour market supports and through intense activation and reskilling and upskilling opportunities, driven by Pathways to Work 2021-2025.
   
3. Rebuilding Sustainable Enterprises through targeted supports and polices to make enterprises more resilient and productive.
   
4. A Balanced and Inclusive Recovery through strategic investment in infrastructure and reforms that enhance our long-term capacity for growth, balanced regional development and by improving living standards.

Key Points

• The National Economic Recovery Plan focuses on: a greening of the economy, upskilling and training programmes for the unemployed, future proofing the Irish economy and society, an inclusive and balanced recovery and supporting young people through capital, housing, education, employment and transport.
  
• There are ongoing disputes regarding the funding of the Plan. Although some of the Plan is funded through the EU’s Recovery and Resilience Fund, there are concerns about sustainability and State borrowing measures.
  
• Taoiseach Micheál Martin has stated that the plan is the ‘opposite to austerity’ and hopes that the measures will appeal to younger cohorts in particular.
  
• The Plan details how the Government hopes to reduce the level of support to incomes and businesses as the economy returns to normal and outlines projects to be funded through the EU’s Recovery and Resilience Fund- one of which is a low-cost loan scheme for retrofitting homes.
  
• The phased withdrawal of the PUP and the introduction of Local Property Tax for owners of new homes built since 2013 are the two most contested issues. There has been industry, media, political and public scrutiny in relation to these changes.

Summary of the National Economic Recovery Plan

The plan:

• Aims to get 2.5m people into employment by 2023. This is more people in work than in pre-pandemic times (2019).
• Extends the Employment Wage Subsidy Scheme (EWSS) from June to September.
• Extends the Commercial Rates Waiver
• Contains details of the planned withdrawal of the Pandemic Unemployment Payment (PUP). The PUP is expected to close to new entrants from July and to reduce in instalments of €50 from September.
• Tánaiste Leo Varadkar has said that Section 12A of the Redundancy Act will be extended. However, he noted that this is the last extension, and that people on the PUP who are not back to work after it expires will be able to trigger their redundancy package.
• Includes details for “green projects”, which includes loan guarantees for retrofitting, public transport, supports for small and medium sized enterprises and related projects. 50,000 training places for digital and green jobs were also announced.
• Includes a “Pathways to Work Plan” which focuses on upskilling, re-training and helping people to get back to work.

Funding Allocation

• Priority 1: Advancing the Green Transition – €503 million.

• Priority 2: Accelerating and Expanding Digital Reforms and Transformation – €295 million.

• Priority 3: Social and Economic Recovery and Job Creation – €181 million.

What is being said?

The Government has said that the publication of the National Economic Plan is timely as the OECD has forecasted growth of over 4.2% in the Irish economy this year. The Government has said that it intends to draw down €950m in EU grants for spending projects and reform initiatives between now and the end of 2022, which it hopes will further the economic recovery in the country.

Opposition TDs from Sinn Féin, Labour and Social Democrats have strongly criticised the Government’s plans to withdraw the Pandemic Unemployment Payment (PUP) and have stated that there is an obligation for the Government to support those who have been adversely impacted by the pandemic. In addition to political backlash, the Society of St Vincent de Paul (SVP) is also reported to have criticised the winding down of the PUP and called on the Government to use poverty proofing safeguards while implementing any changes.

Some business and employer groups, however, seem to be in support of the Government’s withdrawal of the PUP and have even called for it to be withdrawn at a faster rate. Several sources have been emphasising the difficulty of hiring young workers due to the presence of the PUP, with the Government committing to offer supports to businesses who are struggling with hiring employees. The Irish Business and Employers Confederation (Ibec) and The Small Firms Association have also complimented the Government’s Plan, stating that it provides certainty for businesses as the economy begins to transition over the coming months. They have also emphasised the importance of the effective deployment of funding from the EU Recovery and Resilience Fund and have come out in support of the Plan.

Additional debates have ensued politically and within the media regarding the introduction of Local Property Tax for owners of new homes built since 2013. The Government have said that Local Property Tax is used to fund local services such as social housing and estate maintenance and have emphasised that the plan is fair and affordable. Opposition TDs have called for the abolition of the tax, however, with homeowners also vocalising their dismay in the media. The introduction of the Tax adds to an already complex and volatile property landscape within the Republic and will most likely continue to fuel the existing turbulence.

Sector Breakdown

Housing, Property and Transport

• The Government is ending the exemption from the charge on new homes built since 2013. This means that approx. 100,000 people will face local property tax bills for the first time.
  
• Increases of up €100 or more for 36% of people who have been paying property tax since it was introduced are expected. Around 60% of property owners will see no increase.
  
• A metropolitan railway network was announced for Cork, Limerick, Waterford and Galway as well as 30,000 houses zoned along near the stations.

Tourism, Hospitality and Arts

• The 9% VAT rate for the tourism and hospitality sectors has been extended until September 2022.
  
• A pilot income guarantee scheme for artists will be introduced. The scheme will be finalised in July and was one of the key recommendations from the Arts and Culture taskforce.

Payments and Business

• The Pandemic Unemployment Payment (PUP) will be phased out in three stages from September. The first reduction will see €50 taken off the top three rates of the pandemic support. A further €50 reduction is planned for November, followed by a final cut of the same amount in February 2022.
  
• The Employee Wage Subsidy Scheme (EWSS) will run until June next year.
  
• The suspension of redundancy payments will be extended until November while the commercial rates waiver will remain in place until at least September.
  
• A new business resumption supports scheme will come into place in September.
  
• CRSS will be extended until the end of 2021.
  
• The Government has also stated that it will continue to promote digital adoption, driven by the forthcoming national AI Strategy and substantial digital initiatives as part of the National Recovery and Resilience Plan to a total value of €295 million. This includes developing a Shared Government Data Centre in the Republic.

Green Initiatives

• The National Economic Recovery Plan outlines how the Government will spend the funding it received under the European Recovery and Resilience Facility.
  
• Over 50% of EU funding will go towards green initiatives aimed at ensuring the Government reaches its carbon emission targets.
  
• A loan scheme will be introduced for retrofitting homes, which it is hoped will see banks and financial institutions offer loans with 3.5% interest rates to homeowners seeking to make their houses more environmentally sustainable.
  
• EU funding will also be used to provide risk protection to banks and financial services institutions that offer low rates for retrofitting loans.

Education

• €40m will be spent on a transformation fund for technological universities (TU) across the country.
  
• €70m will be set aside for research projects in the areas of climate action and digital infrastructure.
  
• A new Green Skills Action Programme will be launched, including an online green skills programme and an expansion of the retrofitting scheme to include an additional 5,000 people.
  
• Training will also be offered to those in the construction sector to make infrastructure more sustainable and accessible in the context of Ireland’s ageing population and for those with disabilities.
  
• Targeted supports and training for new digital skills. This will take place under the TU fund.

When you think of TikTok it may be lip syncing videos and dances that spring to mind, or #CatsOfTikTok (currently 40.9 billion views). But there’s much more to a platform which hosts an increasingly diverse range of interests, including a growing number of amateur investors who have discovered investing through apps such as Robinhood.

Do you know what it means to double your stimmy? If so, you’re probably already familiar with the world of StockTok, also known as FinTok. For those of you that are not, let me explain. StockTok videos are about investing, or more specifically getting rich. Videos range from investment advice to explaining stock market terms, to simply bragging about how much money you have made.

Scrolling through StockTok and FinTok videos there are some obvious recurring themes. “Stocks that will double in 2021”. “How to double your stimmy” (US government stimulus payment). “If you invested $X in this stock one year ago you’d now have $X” (Tesla is a common recurrence here). Promises of massive financial gains from minimal effort. This is not a place for diversified portfolios or warnings that past returns are no guarantee of future performance.

TikTok Investors on Twitter documents some of the more spurious advice. In one video that was widely circulated in January, “Chad and Jenny” detail how they “fund their lifestyle”. Chad explains that he trades stocks on Robinhood, and that investing may sound intimidating but it’s actually really simple. He sees a stock going up so he buys it, then he watches it until it stops going up and he sells it. Genius! In the previous month this strategy had seen him turn $400 into over $14,000. Why isn’t everyone doing this?

In this case, the backlash was swift and the video soon deleted. The problem is Robinhood’s and FinTok’s growth have coincided with a period of strong market performance since 2019. Markets suffered badly at the beginning of the pandemic, but soon bounced back. The S&P 500 hit all time highs in late 2020 and early 2021, this rebound meant there was money to be made. When markets are going up everyone is an investment genius.

This has come at a time when people have been forced to spend more time at home than ever and are looking for ways to pass the time. They see videos promising massive returns, and evidence that people have made thousands of dollars. But what happens when markets head in the other direction?

That’s the risk.

TikTok investors speak in convincing language, using terms that make it sound like they know what they are talking about. Sure, turning $4,000 into $1 million in eight weeks simply by doubling your money every week is obviously ridiculous, but others are more convincing to those new to this.

If an individual started investing in April last year they’ve only seen markets going up and have evidence of the money they have made. There’s always an audience for people telling you how to make quick and easy money. A young person with no investment experience might well trust them. What’s risky about investing in Tesla? Elon Musk is the richest man in the world after all.

We saw it with the Reddit driven increase in GameStop’s share price. People saw the price going up, they heard of the incredible returns and the money people had made in a short space of time. They wanted a piece of it. Stick it to the hedge funds and make money from it. Win win. But they invested too late. They jumped in at the top, and they lost money. There is a danger that people could be drawn in only to lose money they can’t afford to lose.

What can be done about it? In the UK, investment firms and platforms have to warn in their marketing that investments can go down as well as up and past returns are no guarantee of future performance. It is next to impossible to regulate what people are saying in their videos which are being viewed all over the world, which means it is only TikTok itself which can act here. The pandemic brought about a change in approach from Twitter and Facebook, who became less hesitant to post warnings of misinformation and introduced COVID-19 information hubs. Perhaps TikTok could include its own warning about the nature of investments on any video posted with #StockTok or #FinTok, or even create a financial information hub with some real, sensible investment advice. TikTok’s users are predominantly in the 18-24 age bracket and if this could be extended to other topics too it could be an opportunity for TikTok to show it is a force for good after months of damaging stories about its Chinese ownership.

Until then, unfortunately there are going to be people losing money.

Having joined Cicero/amo as the Head of FinTech in April 2021, the last month has seen a flurry of activity for the UK’s Financial Technology sector. 

We’ve seen the publication of the Kalifa Review into UK FinTech, the UK Listings Review chaired by Lord Hill, and a number of announcements following UK FinTech Week, of which a non-exhaustive list includes HMT Treasury / Bank of England’s taskforce on digital currencies, the Financial Conduct Authority’s (FCA) Regulatory ‘Scalebox’, and the UK Department for International Trade’s (DIT) FinTech Export Academy and FinTech Champions Scheme. 

Of course not everything has been rosy, as the shadow of the Greensill scandal (to some arguably a FinTech firm, and to others not), looms large – having since spawned several independent and parliamentary inquiries into the role of “secret lobbying” at the heart of Government. So where does all this leave the UK’s FinTech sector moving forward? 

Following Chancellor Rishi Sunak’s written ministerial statement in response to the Kalifa Review, it’s clear the Government sees the sector as the future for financial services, and one which is more open, greener, and technologically advanced. However, for FinTech to be a key component of this future much still needs to be done. 

On capital raising, whilst UK FinTech continues to punch above its weight having secured £2bn across 117 deals in Q1 2021, there remains a £2bn annual growth funding gap which risks FinTechs scaling their operations elsewhere. Whilst the Kalifa Review recommends a £1bn FinTech Growth Fund deployed over 5 years, this would cover only approximately 10% of the total funding gap. As such, we need to think about the entire funding life cycle, with a view that whilst private market intervention will help, it is equally important to ensure the path towards IPO remains flexible, and internationally comparable for scalable FinTechs. On this, the Listings Review and the FCA’s consultation paper on special purpose acquisition companies (SPACs) will be instrumental. 

Looking at talent and skills, a perennial issue facing FinTechs has been the depth and diversity of its talent base. As June Angelides MBE, Principal at Samos Investments noted during UK FinTech Week “female founded FinTechs account for only 17% of the UK’s total venture capital investment in FinTech” and black founders have been found to systematically lack access to networks, or institutional investors. Accordingly, it will be important to engage earlier in the career pipeline to ensure there is equality of progression and continue to encourage diversity in STEM roles. Added to this is a lack of role of data – from drop-out rates for different subjects, to understanding and benchmarking the socio-economic background of senior leadership. In summary, it’s hard to have a vision for where the UK should aim tomorrow without first knowing where we are today. 

And finally, as several commentators have suggested, it is very possible that COVID-19 has acted as a digital accelerant for broader financial inclusion. Whilst there are still one million people in the UK without a bank account, within the first month of COVID-19 6m people downloaded a banking app for the first time. 

As such, as the UK starts to provide a roadmap for policy drivers such as Digital ID, cross-regulatory sandboxes, and the transition to Open Finance much remains to be written for the future of the UK’s Financial Technology sector. 

Welcome to the first Rebuilding Britain Index report.

The Rebuilding Britain Index (RBI) is a new community-led index that tracks social and economic progress across the whole of the UK.

The UK stands at a pivotal juncture in its modern history. The global pandemic has resulted in unprecedented impacts, both in terms of the loss of life and lost economic output. The UK economy shrank by 20 percent in the course of 2020, representing the biggest annual fall in over 300 years.

It is vital that as we now look to rebuild our lives, and our communities, that we create an economy which enables us to “build back better”. This means building an economy which better meets the needs of local communities, narrowing the gaps in household and regional disparities, and addressing the growing sustainability challenges facing all communities.

Legal & General’s role, as the leading institutional investor in UK infrastructure, is to support the UK’s efforts to build back better. This means channelling investments into the right infrastructure. This can only be done by giving local communities a key role in determining which infrastructure they need to better support inclusive and sustainable economic growth and restore social mobility.

Working in collaboration with our research partners Cicero/amo, our goal is to firmly establish the Rebuilding Britain Index in providing local communities with a strong voice in identifying their investment priorities. This will help to channel investment into those areas which will make the greatest difference in the quickest timeframe. Our quarterly updates will provide a regular snapshot for how successfully the UK is helping to improve people’s lives and to assess whether the UK is building back better and levelling up across the UK countries and regions.

Click here to access the report in full

Cicero/amo is working in partnership with L&G to develop an index that combines key indicators of social and economic progress. In developing the Index, we have identified seven key areas covering all aspects of the UK’s economic and social infrastructure. For each of these seven areas we built out a series of quantitative and attitudinal statistical measures. In total, the Rebuilding Britain Index (RBI) combines more than 50 different measures to provide a comprehensive assessment of how the UK’s economic and social infrastructure is helping us to build back better. It also benchmarks the UK’s success in ‘levelling up’ across the left behind communities and households.

Please do get in touch for further information or to discuss the report.