Hello Brexit, Goodbye Fintechs?

By Madhvi Mavadiya | 15 July 2016

The decision to move over the mainland Europe is becoming more and more of a reality for many UK based fintechs, despite capital city London being known as a global hub for both finance and technology. The Brexit will result in the negotiation of European trading agreements and many financial institutions and fintech startups will have to comply with different regulations.

According to Reuters, Azimo, online money transfer business, will relocate if the UK’s position in the EU’s passporting system continues to be uncertain, founder and CEO Michael Kent said in an interview. “Whilst we are regulated out of the UK at the moment, we’re talking to regulators in other jurisdictions about changing that, because we have hundred of thousands of customers in continental Europe and we’re not about to give up on them,” Kent said to Reuters.

There are rumours that many large financial institutions, such as HSBC and JPMorgan Chase, have also been considering relocating to Europe due to thousands of jobs being at stake. However, this could open up the space for fintechs to enter under the new regulatory sandbox that provides a safe place for new startups to operate under regulatory flexibility.

Finance is an established industry with many rules that pre-date smartphones, let alone blockchain or biometric identifiers. We recognise that there may be regulatory uncertainty if something is not established market practice,” Christopher Woolard, Director of Strategy and Competition at the Financial Conduct Authority said. Although, France’s central bank governor, Francois Villeroy de Galhau, suggested that relocation for many banks would be necessary.

If tomorrow Britain is not part of the single market, the City [of London] cannot keep this European passport, and clearing houses cannot be located in London either,” he said according to the FT. Although this is an option, the UK could opt for the “Norwegian option”, where they would become a member of the European Economic Area and would have access to the single market without being an official member of the EU.

Fintech influencer Chris Gledhill, CEO and co-founder of Secco Bank, believes that the Brexit should be viewed as a second chance. I believe it is time we started treating a Brexit as an opportunity, not just for UK fintech but for the UK as a whole. It’s like a choice myself and a good few people in the London Fintech scene have made – do you continue working for a large incumbent organisation or quit and join a startup. Well I believe it’s time the UK started acting more like a startup and less like an employee of Europe,” Gledhill said.  

Reuters reported that Kent believes that in order to retain London’s fintech hub status, people, capital and a regulatory environment is required and the Brexit puts a question mark next to these three things. “The French have said we’ll roll out the red carpet, we got a thing from (another) one of the regulators recently saying, have you considered this jurisdiction,” Kent said.

We will never leave the UK completely; we will always have a presence in London because a lot of our customers are British and we don’t think they’re going anywhere. But we will think about the deployment of our financial and our staff resources. And we’re thinking about it now, because I can’t wait two years to find out what happens,” Kent said.

Innovate Finance has a similar attitude to Michael Kent and explores how if London’s 500 million fintech customers that reside in the EU are excluded, this will also prevent UK businesses growing into a larger market. Alongside this, plans for the Digital Single Market (DSM) and the Capital Markets Union (CMU) would be halted or diminished.

30% of the UK’s fintech human capital is from the EU and overseas. Fintech human capital has complex skill sets, such as advanced computer science, regulatory understanding and knowledge of capital markets processes, and it is dependent on domain knowledge. EU fintech talent could face Brexit UK VISA barriers and may be tempted to other European hubs, New York or Silicon Valley,” the Innovate Finance report read.

In a recent FinTalk podcast conducted by bobsguide with Michael Kent and Ricky Knox, CEO of Tandem Bank, they explained their decision to build their fintechs in the UK. “Looking forward across the industry we saw some of the changes happening in the UK around licensing. Combine that with our ambition across fintech to see this disruption wave through and we thought it was the right time to drive through the front window of financial services and nab the banking business,” Knox said.

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