Brexit is Not a Zero Sum Game for Fintech – Huge Opportunities Will Remain in the UK Whatever the OutcomeOctober 16, 2018
Brexit is not a zero sum game for fintech - huge opportunities will remain in the UK whatever the outcome
It’s January 2019 – and who’d have thought we’d still know so little about Brexit’s implications for business? For none more so than financial service organisations including the boom sector of ‘fintech’. Valued at approximately £4.5bn, the UK holds about 80% share of fintech, according to The Financier. So will London remain the “fintech capital of Europe” or will Paris, Berlin of Frankfurt receive a migration of firms and talent from the UK?
Rather than seeing any loss from London taken up by the rest of Europe – or a zero-sum game playing out in Europe overall – we think there’s a positive story to be seen around increasing fintech innovation across both the UK and Europe. There are many countries now following the UK’s lead to reduce regulatory restraints and to increase fintech innovation in their own countries. This is particularly from countries we wouldn’t usually associate with fintech. Take Lithuania in the EU, for example. It’s set to establish a new regulatory regime to ease the way for fintech start-ups and is working with the UK’s FCA to ensure businesses that the UK regulator has approved, then get fast-track approval from the Lithuanian authorities. Both the UK and the continent, with the right regulatory environments, will continue to grow, if not boom.
Whilst multiple factors have influenced London’s fintech growth, continuing innovation will be key
It’s also important to stress that London’s pre-eminence in the fintech space is the result of a diversity of factors, many of which are totally unaffected by Brexit. The UK has always encouraged innovation; the firm Innovate Finance believe that “critical to this has been a forward thinking, open and collaborative regulatory regime driven by the FCA”. And the consultants PwC think we will see continued support from the regulator to encourage innovation. So even if we see any loss of investment and talent from the European region to the UK, this can be compensated for by other territories, such as Asia, coming to the UK. London will still remain a global capital of fintech, but only as long as the UK’s fintech CEOs and Strategy Directors re-focus and re-orientate more innovation towards the Americas, Asia and China.
London will remain a huge centre of gravity for financial services
Whatever the Brexit outcome, London will remain a global financial services leader. For example, London trades nearly twice as much foreign currency as New York, its nearest rival and this trade doesn’t depend on EU markets. Around 60% of the world’s Eurobonds are traded in London. These have nothing to do with the EU and the trade is not fundamentally threatened by the upcoming Brexit. Likewise, the £60 billion-a-year London market for commercial insurance draws a third of its clients from North America, a third from the UK and Ireland and a third from the rest of the world put together, including the EU.
So the UK fintech scene will continue to have the world’s biggest financial centre at its disposal. Some examples of fintech initiatives that have exploited this include the London fintech “bridges” forged with China, South Korea, Singapore, India and Australia.
And if Brexit does threaten to erect barriers that will hinder UK firms trading on the continent, the same is true in reverse. UK fintechs will still enjoy privileged access, in geographical and regulatory terms, to the enormous B2B market that the City of London gives them access to.
It’s all there to play for
Whilst confusion still reigns over the final form of Brexit, we don’t think the UK fintech industry will be adversely affected in the long term. Perhaps we are simply ‘cup half-full’ people and naturally optimistic, but the facts do speak for themselves! The UK fintechs will continue to grow in our view, though some new centres will emerge on the continent as a result of Brexit, either as extensions of London-based firms or as new competition (which is healthy isn’t it?). Since it will take some time for Europe’s new emerging fintech centres to become established, the UK government does need to work out a reasonable transition deal and time period with the EU27 countries. This will give London-based fintech firms the incentive to keep some of their businesses here long enough for them to see and begin to exploit the new opportunities presented to them in a post-Brexit UK. Certainly not a zero-sum game!
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