Are regulatory roadblocks hampering ambition?

David is the director of Superscript’s advisory and broking services. His team supports high-growth, digital businesses across the world, ensuring they get access to best-in-class insurance products and services.

First, the failed £55bn acquisition of Activision Blizzard by Microsoft, then Revolut’s two-year wait for a banking licence and now Monzo and GoCardless Co-Founder Tom Blomfield’s cutting comments that the UK's ‘listing problem is very real’. As he departed for San Francisco, he said that the US is far more favourable to founders, which has led us to ask: is it hard doing business in the UK?

Bad for Britain?

More frustration for Revolut

Since their initial application in January 2021, London-based Revolut has been struggling to obtain a UK banking licence – a process that has taken more than two years. Revolut, Europe’s largest fintech, was valued at $33bn in their 2022 series E fundraise and has been in discussions with regulators but has faced delays due to concerns about its culture, governance and policies.

A UK licence would see Revolut grow from an intermediary to an end-to-end operation, holding and guaranteeing customer deposits and offering loans. These delays have led Revolut’s Chief Executive, Nikolay Storonsky, to attack what he sees as Britain’s ‘extreme bureaucracy’ and the continued lack of a licence has prevented Revolut from fully competing in other markets. With patience waning, there has been speculation that the company may consider leaving the UK.

And it’s not just UK-based companies facing challenges. Similarly, Microsoft's attempted acquisition of Activision Blizzard – a leading game developer behind titles like Call of Duty – was blocked by UK regulators in February this year, due to concerns about competition. In Microsoft’s appeal, the company has stated that it’s committed to the UK market, but this setback raises concerns about the challenges faced by foreign companies looking to do business in the country.

Moving across the pond

March 2023 saw another blow to the markets with the decision by British chip giant Arm to list in New York, rather than its native London.

Finally, late last month, ex-Monzo CEO, Tom Blomfield, announced that he is leaving London for the US West Coast, to join Y Cominator as a group partner. He told Bloomberg:

That ambition and that sort of belief that you can achieve anything I think is very, very powerful and intoxicating, and doesn’t exist as much in London… The US capital markets at IPO (initial public offering) stage are much, much deeper and much more accepting of high-growth tech companies. I don’t think that is going to change anytime soon.

Not dissimilarly, Storonsky has been previously quoted as saying that ‘US tech champions are so supported by the government: all the lobbyists, politicians, governors, they always promote business, business, business and it is completely the opposite in the UK. We have experienced a slowing down. You never know what needs to be done here’.

So what’s this all about?

Regulatory hurdles, such as those faced by Revolut, can slow down the growth and expansion of companies, making it difficult for them to compete with established players in the market. Similarly, competition concerns, such as those that led to the blocking of the Microsoft-Activision deal, can create uncertainty and hinder foreign investment in the country.

But it's not just regulatory and competition concerns that make doing business in the UK challenging. Brexit has also created uncertainty, particularly for companies that rely on the free movement of goods and services across the EU. The pandemic has also disrupted supply chains and created economic instability, further complicating matters for businesses.

What’s the upside?

Despite these challenges, the UK remains an attractive market for businesses due to its skilled workforce, strong infrastructure, and (often) supportive government policies. Think Tank Z/Yen Group just recently named London the world’s most high-tech city, stealing the title from New York.

One reason for this might be that the UK government has committed to creating a business-friendly environment, with initiatives such as the creation of freeports and investment in infrastructure and innovation. The UK is often thought of as a great country to start a business, but a difficult one to scale a company.

However, it is clear that more needs to be done to ensure that the UK remains an attractive destination for businesses. Streamlining regulatory processes and providing greater clarity and certainty for companies would go a long way in reducing the barriers to doing business in the country.

A typical wait time for the type of licence Revolut has applied for is approximately 12 months, and the additional 12-month delay is something Storonsky puts down to newfound caution by the regulators. "Ultimately it is not really us", he commented, "it is generally the banking crisis we see at the moment that makes regulators extra cautious". Indeed, SVB’s collapse in March could not have come at a worse time for Revolut, in reinforcing regulator nerves.

Potential changes on the horizon

But there is a ray of hope. The Financial Conduct Authority has recently proposed changes to simplify the listing process in the UK. The proposals include enabling founder-friendly dual share class structures, lowering the free float level of listings and removing the London Stock Exchange’s two-tier structure.

The issues faced by Revolut and Microsoft in their attempts to do business in the UK highlight the challenges that companies face in navigating the country's regulatory and competitive landscape. While the UK remains an attractive destination for businesses, more needs to be done to ensure that it remains competitive in an increasingly globalised economy. By addressing these challenges, the UK can continue to attract investment and support the growth of its economy.