With just two months to go until the UK is due to leave the EU, we really are no clearer about the shape Brexit will take. There are very few provisions in place for the services sector in a post-Brexit world, which makes the financial technology (fintech) industry one of many that are facing a huge amount of uncertainty.
So just what impact could Brexit have on the fintech industry in the UK? It’s important to stress that these concerns are purely hypothetical as the terms of Brexit remain unclear.
A diminishing of the cross-border validity of UK firms
One major potential consequence of Brexit on the financial services sector, and fintech firms specifically, could be the reduction of the validity of UK businesses in the EU. Currently, UK firms are able to ‘passport’ their authorisation, which allows them to provide regulated financial services in the EU. If there are no specific agreements made before we leave, there could be an end to this transferable authorisation and that will have a severe impact on the fintech sector.
UK firms will struggle to access EU markets if they find their authority has been restricted. Instead, they will have to seek authorisation to operate in each EU member state individually, which is likely to be an expensive and heavily administrative process. The difficulties associated with accessing EU markets could also lead to a reduction of foreign investment in the UK fintech sector. The result could be a decline in the number of start-ups that choose the UK as their primary base.
A mass migration to Ireland
If the UK was to leave the EU without a deal in place, there’s a very real possibility that fintech firms could make the move to Ireland en-masse. The Republic of Ireland is a geographically close, English-speaking country that will remain in the EU after Brexit. It also has a well-established financial and technology industry in place, with many US fintech firms such as Stripe, Square and Paypal already using their presence in Ireland as a jumping off point into the EU. The Irish government has also worked hard to make it an attractive proposition for foreign firms, with a 12.5 percent corporate tax rate and a young, talented workforce.
An inability to attract the best skills
A key asset of any fintech firm is its people. The ability to attract the top talent from the EU and beyond will have an important part to play in the success or failure of the UK’s post-Brexit fintech sector. As it stands, UK companies attract the services of leading developers across the EU. Any limitations that are imposed which restrict the free movement of workers into the UK could put fintech firms at a significant disadvantage. Similarly, any costs that are introduced which makes hiring EU talent more expensive, or increases the administrative complexity, could be enough to deter fintech start-ups from setting up here in the UK.
It’s not all doom and gloom
While those are a pretty dismal set of predictions, it’s important to stress that the UK’s pre-eminence in the fintech space will not disappear overnight. There are a number of factors that make the UK, and London more specifically, a hotbed for fintech firms. The UK has always encouraged innovation and that will become even more critical to the success of the economy once we have left the EU. Even since the Brexit vote, the fintech sector has built new bridges into parts of Asia and Australia, which is an encouraging sign for the future.
Mike Smith
About the author
Mike Smith is the senior director of Business Expert, a fintech platform that lets businesses compare the UK’s leading invoice finance providers in minutes.
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