Six European alternatives to the UK for regulated fintech companies post-Brexit

Last week we attended Passport to the future, a conference held by the Emerging Payments Association (EPA) to discuss thobsguide e next move for jurisdiction after Brexit. The aim of conducting the report was to give fintech professionals and companies an analysis of the business possibilities to them after Brexit. The EPA report was written …

by | January 19, 2017 | bobsguide

Last week we attended Passport to the future, a conference held by the Emerging Payments Association (EPA) to discuss thobsguide e next move for jurisdiction after Brexit.

The aim of conducting the report was to give fintech professionals and companies an analysis of the business possibilities to them after Brexit. The EPA report was written by Peter Howitt of Ramparts European Law Firm and David Parker from Polymath Consulting. Both professionals held a discussion on their report and gave analysis of the six countries that have been shortlisted for the deep dive market. The conference was moderated by Tony Craddock, Director General of the Emerging Payments Association.

If Britain loses its passporting rights to the European single market, payment companies may not be able to deliver services as comfortably across the European Economic Area (EEA). Companies will have to seek replace their EU trade with exports to non EU countries.

HM Treasury estimates that the UK fintech market employs 60,000 people and is worth £6bn to the UK economy. Fintech is a component of the UK’s financial services sector that employs 1.9 million people and contributes 10% of the UK’s GDP.

Passporting rights are a key consequence to single market membership, and it is extremely vital for businesses and companies to have access to the single market. It will be a mundane fact of increased costs, compliance and administrative costs due to the loss of rights.

“The UK is world leading; it’s got the talent, it’s got the investment, and it’s got the technical eco-system – it’s a great place to be. However, if Brexit does result in the loss of passporting rights, this industry has got to work really hard, to ensure that consumers do not suffer and are protected from risk”, said Tony Craddock.

“One thing that’s consistent is this industry’s ability to be flexible, commercial and entrepreneurial." added Craddock.

European countries to consider

15 countries were considered as an alternative to the UK/Gibraltar, with a strict criteria based on the input from the EPA Project Europe team. Six countries were then shortlisted as the final destinations for jurisdiction.

The shortlisted (deep dive markets) countries were as follows:

  • Cyprus: 12.5% tax rate, favourable banking talent pool, and co-operative regulator and UK-derived legal structure. There are also notable non-bank PSP authorised in the country.
  • Denmark: Strong desire to encourage Fintech and e-payments companies to locate in Denmark, open approach to regulator. Has a pragmatic and neutral anti-money laundering environment, which is similar to the UK.
  • Ireland: Has a close proximity and strong relationships with the UK, as well as operating under English-based laws. American Express and Facebook are authorised in the territory.
  • Luxembourg: Second largest EU partner for exports of services. Big names including Amazon, PayPal and Bitstamp authorised in the country. Extremely experienced in regulation and e-payments companies outside the banking sector.
  • Malta: Low cost of living, notable PSPs authorised in Malta, suitable geographic location to take advantage of opportunities in Europe, Middle East & Asia.
  • Sweden: Leader in use of e-payments. Banks and merchants are investing into opportunities of a cashless society. Relatively easy process of opening a bank account.

“Choosing a jurisdiction to be authorised from is a key thing for a regulated company. The relationship with the regulator in the home state is a crucial relationship that can determine quite frankly, the success or failure of your business,” Peter Howitt stated.

Following Theresa May’s recent announcement on the next move in the Brexit negotiations, it appears clear that Britain is facing a complete severing of economic and single markets ties with the EU, and in the future will be trading independently with the hopes of securing a good deal from the European Union (EU). Aiming for a comprehensive free trade agreement (FTA) means Teresa May can now enter new negotiations, free of political compromises around freedom of movement or large payments into the EU's budget, according to Reuters.

A PwC report predicts an estimated reduction of 70,000-100,000 in UK FS employment in 2020, relative to the counterfactual. Employment will gradually recover in the long-term as the market adjusts, but overall the FS employment levels will decrease.

The report also states that there could be potential knock-on impacts on the FS sector, which will have the consequence of damaging the UK’s position as a global financial centre. Banks and financial institutions may be able to adapt to restrictions to the single market, however location decision could see businesses relocating to other EU financial hubs.

Sadiq Khan has insisted that London will remain Europe’s financial headquarters, and still be an international hub to international talent, trade and investments, but this is still to be universally accepted. 

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