Financial technology, or fintech, firms like to present themselves collectively as the very model of a 21st-century industry: slick, disruptive, growing rapidly and vital for national prosperity.
That self-image was endorsed on Friday by Ron Kalifa, former boss of payments processor Worldpay, in his review for the Treasury on how best to support the sector post-Brexit. “If the UK is to retain its position as a global leader in financial services, then we must lead this technological revolution,” he declared in the introduction.
There is, though, one area where the UK’s fintech brigade would like to shun 21st-century practices, at least those in London, and turn back the clock. It seems they don’t like the principle of “one share, one vote” at public companies. Kalifa’s review recommended that founders and pre-flotation investors be allowed to keep shares with supercharged voting rights, even after a company has gone public.
But the proposal is more nuanced. Dual voting rights are allowed on the London Stock Exchange but a company must accept a “standard” listing, which means exclusion from stock-market indices such as the FTSE 100 and FTSE 250, which are reserved for “premium” listed companies. The Hut Group, the online retailer, took that “standard” route recently. Kalifa’s proposal is that the listing rules be changed to suit the fintech crew: let founders keep control via golden-share arrangements but also award them “premium” status.
In addition, Kalifa recommended changes to another traditionally important rule: that at least 25% of shares in “premium” firms must be in public hands. The report suggested a 10% “free float” would be enough. It all adds to the impression that the fintech pioneers would like the revolution to be conducted on their terms: please buy a slice of our company and help to fund it, just don’t expect traditional governance protections.
Kalifa’s report, it should be said, had many less-contentious ideas within its 108 pages, such as a privately financed £1bn “fintech growth fund” to finance earlier-stage companies and a visa “stream” to attract engineers from overseas. But the proposed changes to the listing rules will generate the most heat, not least because Lord Hill’s broader review of UK listing regulations is due soon.
Is a watering-down of the rules outrageous? Well, the whiff of fintech self-entitlement is unmistakable. The principle of equal rights for equal economic risks has served the London market well. It is a cornerstone of its claim (not always solid) to uphold high standards of governance.
But here’s the problem – and also the reason why, in the end, it may be best for purists to hold their noses and grant the reform. Unfortunately, Kalifa is correct when he points out that many other stock markets, from New York to Germany to Singapore, do not penalise dual-voting structures.
Given that the US market has already attracted several high-profile UK tech companies – including Arrival, a £4bn electric vehicle company – the issue cannot be wished away as trivial. This may be a case of having to join the crowd if London is to keep its share of UK tech successes. A vibrant stock market is not the only measure of fintech success, of course, but it would be silly to pretend it is not important in setting the tone.
“UK investors and the fintech ecosystem risk losing key company listings that wish to mature gradually into premium-listed status, rather than make a giant leap,” argued Kalifa’s report. He may be right. We’ll see what Hill’s review brings, but it feels as if the mood is shifting on this issue.
Founder-led firms’ demands for concessions and golden shares feel unsporting, but, like it or not, these companies matter. There are dangers if the London stock market is seen as a backwater of banks and mining companies.
A public bailout might have been easier for Barclays than this
Barclays should be given credit where it is due. In 2008 it raised enough money during its emergency cash call to allow it to avoid the public bailouts that would bring Lloyds and the Royal Bank of Scotland under state control.
But the bank has traded one set of woes for another. It has spent 13 years battling claims that a deal it struck with its Qatari investors was unfair to other shareholders, and the arguments are likely to continue for a few years yet.
Barclays did dodge the political pressure that plagued RBS following its £45bn bailout. That lender, rebranded as NatWest, had to slash bonuses, shrink its investment bank and rein in excesses. This has led to a persistently low share price for NatWest, delaying re-privatisation and leaving it majority state-owned.
Lloyds fared better, returning to the private market in less than a decade. Having taken a £20.3bn bailout in 2008, the group managed to report its first post-rescue profit in 2010 and returned to full private ownership by 2017.
Barclays chose a different path. Its former managers have plodded through two regulatory investigations, two criminal trials and a private lawsuit linked to its controversial £11bn emergency fundraising. While criminal courts found executives not guilty of wrongdoing in 2020, and a lawsuit involving the businesswoman Amanda Staveley was ruled in Barclays’ favour last week, it is still not out of the woods.
The Financial Conduct Authority has resumed an investigation put on hold during the Serious Fraud Office’s doomed criminal trial. In 2013, the regulator said it was likely to fine Barclays £50m for behaving “recklessly” in the rescue deal. Barclays may also face an appeal over Friday’s high court ruling. It is unlikely to draw a line under the 2008 crisis any time soon.
Trains are empty already. Making them less affordable won’t help
Tomorrow, the rate of rail unaffordability accelerates a little more than usual. Just for 2021, the government has hiked the controversial annual RPI-led increase by an additional 1%.
Politically, it may make sense. The change of date avoids the usual guarantee of headlines around the quiet new year period.
The majority of regular passengers who might have seen hundreds of pounds added to the cost of an annual season ticket are now working from home, banishing past nightmares of cramming aboard a commuter train. Those who do travel by train enjoy unprecedented personal space and punctuality. And it is hard to question the Treasury’s commitment to the industry after a year of emergency contracts and underwriting rail services to the tune of £10bn.
For all that, the decision to claw back scraps of revenue from the few remaining passengers during the pandemic appears concerning. If Britain is, as politicians of all sides endlessly proclaim, planning to build back better – and certainly if there is a wish to revive city centres – public transport cannot be allowed to wither.
Perhaps, given the experiment of eating out to help out last summer, the Treasury would for now rather deter people from taking trains than risk reducing social distancing. Yet if the vaccination programme is running well enough for all constraints to be lifted by summer, it makes little sense to entrench long-term expense into the railway system.
Ministers have over the past decade championed infrastructure investment, and continue to do so with HS2, even if some schemes look set to be deferred. There would certainly be hard questions about the future need for train services, should work and travel patterns remain subdued.
However, a return to mass mobility and commuting, without the backbone of an affordable and efficient rail system, would be a grim, polluted, congested future indeed.
