The loss of EU Passporting rights, which enable financial service businesses to operate freely across 28 EU nations, is the most obvious threat to financial services companies. Leading London based banks such as HSBC and Morgan Stanley are planning to shift affected departments to Paris and other growing European financial hubs such as Dublin and Frankfurt. However, this isn’t anticipated to be a major issue for FinTechs. Only 20% inquire with regulators about passporting rights and only a fraction of those need them.
The decline in UK FinTech investment is having a more chilling effect on startups. While global Fintech investment grew by 11% in 2016, investment in the UK fell by 34%. This is anticipated to lead to some contraction in the industry as companies are forced to tighten their belts. However, the picture is more nuanced – while the total value of deals declined, the total number of deals actually increased in 2016, partly as a result of the declining value of sterling. And the UK still remainsthird in total investment in the world, behind China and the US at $532 million. It’s clear that if a company is still building a competitive product, then the investment is still available.
EU legislation for cloud services is centered around the General Data Protection Regulation (GDPR), which strengthens data protection legislation for individuals. The UK Government confirmed in October that, despite Brexit, it still intends to implement GDPR. Although the terms of Britain’s separation from the EU are still unconfirmed, it seems likely that the UK will continue to enforce compliance post-Brexit and will seek confirmation from the European Commission that the UK’s laws are equivalent to the EU’s. So any companies planning to invest in GDPR compliance should continue to do so, as the effort will not be wasted.
Opportunities for British FinTech Firms outside of Europe
It’s still possible to find opportunity in a crisis – this is exactly what FinTech firms need to do. Though things are still unclear on the future relationship with the EU, the UK is looking to strike new trade agreements with other countries.
Say NÇ HÇŽo to China and OlÃ¡ to Brazil!
The UK has been busy looking at forming agreements with China, Brazil, the Gulf States, Australia, New Zealand, India, and the United States. This will open up whole new markets for British-based FinTech firms to explore. Companies that can adapt to new regulatory regimes the fastest, speed up transformation and develop increased efficiency in challenging conditions will come out on top. The financial services sector is predisposed to thrive in uncertain conditions. The last financial crisis has led to the development and growth of some of the most successful FinTech companies in London. Therefore, Brexit provides the opportunity for innovation and will spur the development of new solutions.
Next Steps for FinTech Firms
It’s time for some due diligence. It’s important for UK-based firms to determine where their clients are or where they could be coming from in future. If the majority are based in Europe, it could be worth exploring setting up a virtual office in one of the growing EU tech-cities like Amsterdam or Dublin. It’s also important to keep an eye on regulations that might change when UK leaves the EU.
At iPushPull we’ll continue to apply the highest regulatory compliance to the protection of our customers’ data thoughout the Brexit process, so that our financial services customers can continue to be compliant as the political landscape changes. Sign up for a free trial or contact our sales team for more details today.