Shearman & Sterling | FinTech | Setting Up in the UK
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Setting Up in the UK

Shearman & Sterling’s FinTech Foundry team in the UK and EU is committed to fostering the growth of technology-based financial services companies and supporting our clients and the wider FinTech ecosystem. With six offices in the UK and Europe, and often working together with our colleagues in the Americas, Middle East and Asia, we have a deep understanding of cross-border regulation, fundraising, M&A and capital markets, making us an ideal partner to support the expansion of FinTechs every step of the way.

In this section, we highlight some of the key considerations for FinTechs when setting up operations in the UK, along with additional information on the UK FinTech market.

Setting Up In The UK:  A Checklist

The below checklist includes a number of steps that FinTechs should consider to take when establishing operations in the UK.

  • Legal
    1. Register UK legal entity (e.g. limited company, LLP or branch)
    2. Register with tax authorities for corporate and employee tax purposes
    3. Employee contracts
    4. Equity agreements
    5. Trademark and patent filings
    6. Register with Information Commissioner for data privacy purposes
    7. Analysis of regulated activities
    8. Consider appropriate compliance controls framework
  • Fundraising
    Prepare pitch decks, executive summary and other relevant marketing materials for prospective UK investors
  • Immigration
    Obtain visas and documentation for relevant personnel
  • Tax
    Determine how business activity will be taxed and set up tax compliance protocols
  • Insurance
    Evaluate insurance needs and obtain necessary policies
  • HR & Personnel
    Establish benefits and payroll systems, search for potential employees
  • Banking & Finance
    Reconcile UK and home country bank accounts
  • Professional services
    Appoint external accountants and lawyers to support the business
  • Office or Coworking Space
    Secure office leases or coworking arrangements
  • Government Affairs
    Develop relationships with UK development and regulatory agencies
  • Administrative
    Identify potential contractors and evaluate administrative needs

Key Considerations

Below are some key legal considerations for FinTechs that wish to scale their business to the UK. While this list is not exhaustive, and every factor may not be relevant to every business, the considerations below are intended to help direct your thinking and to focus your attention on potential issues that should be addressed.

UK FinTech Regulation

  • Depending on a FinTech firm’s activities, a FinTech firm may be subject to financial regulation in the UK.
  • The key financial regulators in the UK are the
    1. Prudential Regulation Authority (prudential regulator of banks, building societies, credit unions, major investment firms and insurers),
    2. Financial Conduct Authority (conduct regulator of all financial services firms, prudential regulator for smaller investment firms and insurers and anti-money laundering supervisor for certain FCA-authorized and certain crypto-asset firms),
    3. Payment Systems Regulator (regulates payment systems for competition aspects), the Bank of England (supervises payment systems and certain service providers to payment systems)
  • Firms not under those umbrellas should consider the need for AML registration with Her Majesty's Revenue and Customs.
  • The Information Commissioner’s Office has a separate registration process and is responsible for data privacy regulation, administration and enforcement.
    1. The UK is known for its open markets, taking a risk-based approach to regulation. The UK has also been at the forefront of creating an environment for competition and innovation in FinTech. This includes developing FinTech solutions through the Financial Conduct Authority’s (FCA) Innovation Hub, which comprises the Regulatory Sandbox (allows firms to test new products and services with real consumers in a controlled environment), the Innovation Pathways Support (assists firms with their regulatory obligations, if any) and the Digital Sandbox (allows firms to test new products and services in the area of environmental, social and governance (ESG) data and disclosure.
    2. The UK will also launch a "scale box" for growing FinTech firms and a financial market infrastructure distributed ledger technology (DLT) sandbox.
    3. The FCA leads the Global Financial Innovation Sandbox, a global sandbox, allowing users to run tests across geographies simultaneously.

UK Tax Law

  • Any new UK business will need to register with the UK tax authorities for purposes of tax reporting, deduction at source of employee taxes and, potentially VAT, for example.
  • How UK tax rules apply will depend on a variety of factors, including the type of entity used, means of capitalization and activities carried out. It is common to conduct business through a UK-incorporated company, but business can also be conducted through UK branches of non-UK companies.
  • The UK's corporation tax rate, at 19%, is one of the lowest rates of tax in the G20 (although we note the rate will rise to 25% from April 2023), and applies to the worldwide profits of UK incorporated companies or, in respect of non-UK companies, to the profits attributable to its UK branches.
  • The UK does not operate a group consolidation regime for corporation tax purposes but a similar result can be achieved through a group relief system permitting the transfer of losses between UK sub-group members.
  • The UK does not generally impose withholding tax on dividends paid by UK companies. The UK imposes withholding tax of 20% on interest and royalty payments; however, such withholding tax may be eliminated or reduced under domestic law or the UK's extensive double-tax treaty network, or no withholding may be imposed if paid to certain EU affiliates.
  • VAT, with a standard rate of 20%, is generally charged on supplies of goods and services, and credit for VAT incurred may be available. Certain goods and services, like supplies of financial services, may be exempt from VAT, but suppliers of such goods and services may be restricted in their ability to obtain credit for VAT incurred. UK members of the same corporate group may, by application to HM Revenue & Customs, be treated as a single entity for VAT purposes such that transactions between them do not give rise to a VAT charge.

Digital Banking and Nonbank Activities

  • Firms that accept deposits in the UK are subject to UK regulatory requirements and regulatory oversight as a bank.
  • The Open Banking Implementation Entity creates software standards and industry guidelines for Open Banking to propel innovation and transparency in the retail banking market.
  • The PRA is responsible for granting licences for UK banks. Once authorized, a UK bank is supervised by the PRA for prudential requirements and by the FCA for conduct requirements.
  • Where a FinTech firm partners with a UK regulated firm, depending on the involvement of the FinTech firm, the FinTech firm may need to obtain a regulatory licence too. The FinTech firm may also need to provide information to the UK regulated firm in connection with the regulated firm's regulatory obligations.
  • Regulatory licensing may also be required if a FinTech firm engages in other financial activities, such as arranging, advice, dealing, money transmission, credit broking or certain digital asset transactions.
  • Firms that engage in digital activities should be cognizant of whether additional UK laws or regulations apply, for example, the e-money regulations, consumer credit rules, rules relating to payment services, market abuse regulations and anti-money laundering requirements.

Digital Assets and Tokenization

  • Regulation of digital assets depends on the nature of the assets and the type of activity involved, with decisions as to the regulation that applies being made on a case-by-case basis.
  • Regulated tokens include:
    1. security tokens, which are the same as, or provide rights and obligations akin to, those granted by specified investments (other than e-money) such as shares and debt securities.
    2. E-money tokens, which are tokens that meet the definition of "e-money" (i.e. electronically stored monetary value that represents a claim on the e-money issuer).
  • A token that is not a security token or an e-money token may be an unregulated token but extreme care should be taken on this question, since many "tokens" are structured as a device to attempt to raise finance via what are effectively shares or bonds but purporting to avoid regulation. Examples of unregulated tokens are utility tokens and exchange tokens (crypto-currencies).
  • Certain activities carried out in relation to digital assets that are within the UK regulatory perimeter will require a firm to be authorized and/or be subject to regulation, including:
    1. Firms issuing or creating digital assets. Capital-raising activities generally are subject to FCA rules and regulations. Initial coin offerings and other token issuances may be considered securities. Rules relating to collective investment schemes may also be relevant;
    2. Firms advising on or buying and selling digital assets;
    3. Firms and platforms that facilitate transactions between participants;
    4. Firms that provide secure storage for or that hold tokens;
    5. Payment services; and
    6. Firms marketing digital asset products and services.
  • Firms that engage in digital asset activities should be cognizant of whether additional UK laws or regulations apply, for example the e-money regulations, rules relating to payment services, market abuse regulations and anti-money laundering requirements.
  • Advertising of digital assets may be subject to the Advertising Standards Authority's requirements. Certain digital assets (that are fungible and transferable) will become subject to the UK Financial Promotion Restriction, which will limit the advertising of digital assets to those that are made or approved by a UK authorized firm. The sale, marketing and distribution to retail clients of derivatives and exchange traded notes referencing certain types of unregulated, transferable digital assets by firms acting in, or from, the UK is banned.
  • Digital asset exchange providers (such as ATMs, peer-to-peer providers and those issuing new crypto-assets by ICO or initial exchange offerings) and custodian wallet providers need to be registered with a UK regulator for anti-money laundering purposes.

Data Privacy

  • UK data privacy law is contained in UK's Data Protection Act and the UK GDPR (which reflects the EU GDPR which was onshored when the UK left the EU) and the Data Protection Act 2018.
  • There are seven principles that apply to all forms of processing personal data, which include being transparent, minimizing the collection of data and keeping data safe.
  • FinTech firms need to be able to demonstrate their data protection compliance, which requires an understanding of the issues and keeping records of decisions made.
  • The fines for non-compliance can be the greater of £17.5 million and 4% of worldwide turnover.
  • GDPR gives individuals significant rights to access personal data, have data rectified/erased and 'rights to be forgotten' and to receive compensation for damages suffered as a result of non-compliance.

IP Protection

  • IP in the UK is generally protected by a combination of patents, copyright, trademarks and confidentiality.
  • Copyright and confidentiality arise automatically, but patents and trademarks have to be applied for and registered.
  • FinTech firms must ensure that their agreements with contractors, consultants, and other service providers preserve ownership or licensing of IP developed for them.
  • FinTech firms should keep records of their development of works, such as software and databases, as evidence of their ownership of the unregistered IP.

Regional UK FinTech Hubs

The UK is widely considered to be one of the leading countries in FinTech throughout the world. When scaling a FinTech to the UK, companies have the option of setting up operations within a number of different regions, each with their own distinct characteristics, strengths and talent pools. The map below provides a description and some defining traits of each of these regional FinTech hubs within the UK.
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Click on each location to learn more.



The FCA's Innovation Hub provides a range of tools for innovative financial services firms to launch new products and services in the UK. These include the Regulatory Sandbox and Digital Sandbox as well as Innovation Pathways, a support service for FinTech firms offering guidance on the UK's regulatory architecture and how it applies to their businesses (see below). The FCA also provides information resources and runs TechSprints and Challenges.

Eligibility criteria for access to the Regulatory Sandbox, Digital Sandbox and Innovation Pathways include whether the product or service is intended for the UK financial services market, novelty of the product or service, consumer benefit, whether there is a genuine need to participate in the sandbox and readiness for testing.

To learn more about the FCA Regulatory Sandbox, Digital Sandbox and other FinTech Regulatory sandboxes throughout the world, we invite you to visit our Global FinTech Regulatory Sandbox Map. The map includes helpful information for each sandbox, including launch date, governing commission, law & regulations, the environment and eligible products.

FCA FinTech Regulatory Sandbox

The Regulatory Sandbox is open to FCA-regulated firms which operate within the special category of the UK sandbox and also non-licensed firms that will require regulation in due course once testing or launch commences, as well as technology businesses seeking to innovate within the UK financial services market. The sandbox provides firms with:
  • the ability to test products and services in a controlled environment (e.g. limits on numbers of clients and assets);
  • reduced time-to-market at a potentially lower cost;
  • support in identifying appropriate consumer protection safeguards to build into new products and services; and
  • the opportunity to find out whether a business model is attractive to consumers, or how a particular technology works in the market.

For accepted sandbox participants, the FCA may be able to offer the following:
  • Individual guidance on how certain of the FCA’s requirements apply in the context of the specific test;
  • Waivers or modifications to existing FCA rules for the purpose of the testing period, although national and international law still applies;
  • No enforcement action letters given that participants deal with the FCA openly, keep to the agreed testing parameters and treat customers fairly; or
  • Informal steers on potential regulatory implications of a new product or service.

Testing within the sandbox environment is intended for a limited duration, which typically lasts up to 6 months.

Contact to get in touch with a member of the FCA’s sandbox team.

Innovation Pathways Support

Innovation Pathways Support is open to FCA-regulated firms, unregulated firms that will require FCA regulation once launched and technology businesses seeking to innovate within the UK financial services market. The Pathways Support provides firms with help to understand the FCA's rules, the implications for a firm's business model, and what is required to launch a regulated business.

For participants, the FCA may be able to offer the following:
  • One-to-one discussions with a case manager;
  • Pre-licensing meetings to clarify the process and the FCA's expectations;
  • Individual guidance on how certain of the FCA’s requirements apply to a specific business;
  • Informal steers on potential regulatory implications of a new product or service; and
  • Supervisory support for the first year following licensing

Contact to connect with a member of the FCA's Innovation Pathways Support team.

Digital Sandbox

The Digital Sandbox is aimed at early-stage development firms and grants access to an online platform (as opposed to the real market access granted under the Regulatory Sandbox). The pilot phase of the Digital Sandbox was designed to address issues that emerged in response to the pandemic. The second phase is to support the testing and development of new products and services that will aid the transition to a net zero economy.

For participants, the FCA may be able to offer the following:
  • Access to financial data sets to develop, test and train models and proof of concepts.
  • Opportunity to collaborate with a network of innovators, regulators, financial services firms and investors.
  • Access, connect and test with a number of existing FinTech and RegTech APIs.
  • Access to an Integrated Development Environment for code development and data analytics.
Contact to get in touch with a member of the FCA's Digital Sandbox team.  

Glossary of Relevant Regulators & Government Organizations

There are a number of regulators and government organizations that play a direct role in supporting and upholding the integrity of the FinTech and financial services industries. FinTechs scaling their business to the UK may look to these regulators and organizations for guidance and may be required to register their business with one or more of these entities, depending on the company’s activities.

Bank of England

The Bank of England is the central bank of the UK. The Bank of England is responsible for setting monetary policy, maintaining and testing financial stability and supervising payment and settlement systems, clearing houses and central securities depositories. It also has a role to understand how FinTech development may affect financial stability and in applying FinTech to the central bank’s own capabilities.. The Prudential Regulatory Authority is a department of the Bank and regulates UK banks and larger systemic investment firms.

Competition and Markets Authority (CMA)

The Competition and Markets Authority is the UK’s competition regulator, seeking to promote competition for the benefit of consumers, both within and outside of the UK. The CMA is responsible for investigating mergers and acquisitions, protecting consumers from unfair trading practices, investigating markets and taking action against business and individuals that take part in cartels or anti-competitive behaviors, among other things.

Department for International Trade (DIT)

The Department for International Trade helps secure UK and global prosperity by promoting and financing international trade and investment, and championing free trade. They are an international economic department, responsible for bringing together policy, promotion and financial expertise to break down barriers to trade and investment and helping businesses succeed. Moreover, DIT promotes British trade and investment across the world (including FinTech), whilst working with the industry to foster conditions for growth across the domestic ecosystem and support international expansion initiatives.

Financial Conduct Authority (FCA)

The Financial Conduct Authority is the UK’s principal financial services regulator, responsible for maintaining the stability of the UK’s financial markets and the conduct of its financial services firms. The FCA oversees minimum standards for financial services and products, such as pensions, credit cards, deposits, payments and investments and performs a supervisory role with banks and other payments institutions. The FCA also manages its Regulatory and Digital Sandbox programs, provides tailored regulatory support for innovative FinTech firms and gives feedback to firms developing automated advice and guidance models.

HM Revenue & Customs (HMRC)

HM Revenue & Customs is the UK’s tax, payments and customs authority, responsible for collecting funds that pay for the UK’s public services and helping families and individuals with targeted financial support. It also has a residual role as an anti-money laundering regulator for firms not regulated by the Bank of England (PRA) or FCA.

HM Treasury

HM Treasury is the UK government’s economic and finance ministry, maintaining control over public spending, setting the direction of the UK’s economic policy and working to achieve strong and sustainable economic growth. HM Treasury works closely with other government organizations, regulators and industry bodies to champion FinTech within the UK and leads on the country’s FinTech Sector Strategy, aimed at preserving the UK’s position as a global FinTech hub.

Information Commissioner’s Office (ICO)

The Information Commissioner’s Office is an executive non-departmental government body responsible for upholding information rights in the public interest, promoting openness by public bodies and data privacy for individuals. The ICO is responsible for enforcing the data protection legislation in the UK, including the UK General Data Protection Regulation (GDPR) and Data Protection Act 2018.

Open Banking Implementation Entity (OBIE)

The Open Banking Implementation Entity was created by the UK’s Competition and Markets Authority and the UK’s nine largest banks to create software standards and industry guidelines to foster competition and innovation in UK retail banking. The OBIE works with financial institutions, FinTechs and technology providers to design industry specifications and standards related to the implementation of Open Banking within the UK.

Payments Systems Regulator (PSR)

The Payments Systems Regulator is a subsidiary of the FCA and is responsible for ensuring that payments systems operate effectively within the UK. The PSR sets payments systems standards and imposes requirements regarding system rules and frequently collaborates with market participants and industry bodies to shape its policymaking.

Prudential Regulation Authority (PRA)

An arm of the Bank of England, the Prudential Regulation Authority is responsible for the prudential regulation of banks, building societies, credit unions, insurers and major investment firms. The PRA supervises these firms through a rounded, robust and comprehensive view of their activities and risk profile to determine whether they are being operated in a safe and sound manner.


One of the strengths of UK FinTech is the industry bodies underpinning the ecosystem. These industry bodies play a direct role supporting FinTech within the UK (or a respective region within the country), and often seek to fulfill their mission through industry events and education, collaboration with government and regulators and partnerships with financial institutions and other financial services firms.

Innovate Finance

Innovate Finance’s primary aim is to accelerate the UK’s leading position in the global FinTech sector - they aim to serve as a single-access point to the FinTech ecosystem, and through their own innovation and partnership programs, they strive to connect their members to customers, investors, policymakers, educators, talent and key commercial partners - all those operating within the FinTech sector.

FinTech Scotland

FinTech Scotland was founded in January 2018 as a joint initiative by Lloyds Banking Group, HSBC, University of Edinburgh, Scottish Government and Scottish Enterprise. The organisation is now supported by a broad range of global financial services, technology and professional services firms, as well as University of Edinburgh and University of Strathclyde, the Financial Conduct Authority, Scottish Government and Scottish Enterprise. FinTech Scotland is an independent body and in January 2020 was formally recognized for the development for the FinTech cluster in Scotland.

FinTech North

FinTech North is an initiative championing FinTech in the Northern Powerhouse. They aim to generate collaboration and knowledge share by building a FinTech community across the Northern Powerhouse, enhance reputation of the Northern Powerhouse as a FinTech region and generate tangible economic benefit for the region and the cities within it.

FinTech Wales

FinTech Wales is a not-for-profit organization set up by HM Treasury’s FinTech Envoy for Wales and the Welsh government that aims to make Welsh FinTech a pillar of the global economy - nurturing talent while connecting and enabling the sector’s ecosystem.

FinTech West

FinTech West is the place for disruptive start-ups, dynamic scale-ups and established enterprises in Bristol. They share ideas about what’s working (and what isn’t) and how to shape the future of the industry in that region.

FinTech NI

FinTech NI is an industry association and the independent voice of FinTech in Northern Ireland. They aim to champion and empower participants in the local FinTech ecosystem to be successful on a global stage.

FinTech Alliance

FinTech Alliance is a multifaceted digital engagement platform that aims to bring the global FinTech ecosystem together to explore, engage and do business. They are a community-driven platform for the whole FinTech industry, in which they say all the profits are reinvested back into the FinTech sector, providing a fully inclusive environment to support FinTech growth and empower UK business with comprehensive information, services and intelligence.