“The biggest domestic risk to financial stability” - this is how Bank of England governor Mark Carney described how the potential Brexit would affect the UK.
If the UK votes to leave in the 23rd June referendum, Carney predicts that this would result in consequences for Britain’s balance of payments with the rest of the world, as well as complicate foreign investment and relationships with banks, according to the Wall Street Journal.
The WSJ reports that other Bank of England officials have framed their comments on how EU membership currently “affects their ability to meet the central bank’s twin goals of maintaining stable inflation and safeguarding financial stability.”
However, some officials have stated that the central bank are overstepping the mark and during the debate this week, they accused Carney of entering politics inappropriately. Carney countered this point by saying that he was not encouraging Britons to vote to remain in the EU and denied that the UK government had forced the Bank of England to support pro-EU.
The WSJ continued to report that banks are already putting plans in place in case they have to move people and operations elsewhere, but Carney declined to comment on which institutions he meant, due to “supervisory confidentiality”.
It is yet to be told if London will remain as one of the world’s financial centres if the UK leaves the EU, but this also questions the effect it will have on UK fintech.
London is widely known as a fintech hub, with companies such as peer-to-peer lender RateSetter, crowdfunding platform Crowdcube and money transfer company TransferWise being created and having boomed in the British capital.
Although, these technology startups that are trying to compete with the legacy players, are also at risk if the UK leaves the EU. London is also in the fintech race with San Francisco, New York, Berlin and Hong Kong and a decline in momentum would ensure that the city is no longer a leader.
According to Reuters, the fintech industry is worried. “The industry is worried London will lose momentum and its reputation for innovation if Britain has to renegotiate its trading relationship with the EU or deal with economic fallout from an “Out” vote.”
Out of the 10 London-based fintech companies that were interviewed by Reuters, seven said that they may move their headquarters, two said they would definitely stay and one declined to comment. All 10 said that the Brexit was a serious concern for them.
Eileen Burbidge, notable fintech leader is also concerned about a possible EU exit. “I don’t think there’s a contingency plan, which is part of my personal concern,” she said and takes this position as the British Treasury’s envoy for fintech and chairwoman of government agency Tech City UK.
According to an Ernst and Young report commissioned by the UK government, London’s fintech sector is far ahead in revenue than California and New York, with earning of over £6.6 billion.
Reuters explains how this is a very small amount compared to what traditional banks rake in, which could mean that the EU exit could have more of an effect on these entities than the newer companies.
An Innovate Finance survey showed that 82% of firms want to remain in the EU and believe that a Brexit would be a disaster and isolate London from the wider industry, according to Reuters.