The UK holds a leading position in fintech and the debate has started around what Brexit will mean for this booming sector.
After the initial shock and disbelief, the fintech community has shifted the nature of its Brexit dialogue from the ‘why’ of it to the more constructive ‘how to’ navigate it. Nobody has all the answers but at least a constructive debate has started focusing on next steps and workarounds. Some of this will inevitably migrate into lobbying activity but, in large part, it will be down to self-help for individual businesses but also the industry as a whole.
What will happen to the UK’s edge in fintech?
Three key factors outside of the large financial services sector have given London and the UK a leading position in fintech: language, legal system and access to talent.
The biggest concern post-Brexit will be continued access to talent but we can expect that most sensible immigration systems will attune themselves to welcoming the talent that is most needed by the major industries in that market.
On the legal framework front, not all fintech businesses are ‘built global’ and not all are regulated. Some, by their very nature, are built to improve traditional approaches within a specific market and within a country’s local regulatory environment. Others are fundamentally focused on disrupting the globally accepted standard. For example, many of the innovators in the remittance market, such as Transferwise, are challenging what has traditionally been a high mark-up market for incumbents.
For many, there is clearly uncertainty around current EU ‘passporting’ rules that allow regulated entities to operate across the EU. One would speculate that given its importance to the financial sector it is likely to be top of the agenda for any UK government.
It is hard to imagine that these three underlying conditions that have helped us achieve the top slot in the fintech space will change significantly. There is however the issue of the willingness to be based here and access to funding.
How can we safeguard our position?
So long as we continue to attract the right talent to our universities, maintain the tax incentives needed to encourage entrepreneurship, and maintain the regulatory sandbox that is so important to allow startups to innovate and grow, the basic conditions for encouraging more fintech startups in the UK should remain in place.
For those regulated businesses that are authorised by the FCA to carry out regulated activity across Europe through passporting, we hope there will be little difficulty in seeking additional approval from other EU regulators for continued passporting across the rest of the EU.
On funding, the significant level of dry powder within the PE/VC community, both within the UK and elsewhere, depreciation of the pound, as well as a sustained period of low interest rates should help provide an attractive environment – notwithstanding any short-term volatility. Low interest rates could even encourage banks to take a more active role in the fintech ecosystem. Change, to some degree, is healthy for innovation.
The government is likely to be cautious about triggering Article 50 and so, until then, most things should remain unchanged. Even once it is triggered, it is anyone’s guess what the timeframe leading to a new paradigm would be, even given the two-year timescale for exit negotiations. Now that is a long time in a fast-moving environment such as fintech. We already have a multi-year lead over other major cities who aspire to London’s status and, together with the long timeframe around Article 50, this should help us maintain our position.
Just as it is difficult to predict the long-term future with any degree of certainty, it is difficult to predict the long-term impact of Brexit on our fintech ecosystem. What is certain, however, is that Brexit is unlikely to undo our fintech legacy in a relatively short period of time, and that London and the UK as a whole will fight hard to retain this lead.
Read our guidance on Brexit and explore how we can help
Exploring potential changes to trade and supply chains
Retaining and recruiting the skills you need through Brexit
Exploring the key issues around finance and business infrastructure