Fintech’s boom too big to be stopped by Brexit

It has been one week since Britain went to the polls and voted to leave the EU. Shocked? Speechless? Perhaps a new adjective needs to be created for the post-Brexit reaction of many.

Potential clouds of ambiguity over the financial industry before the vote have gone into a cyclonic overdrive. In the initial aftermath, the uncertainties for London’s financial technology industry appeared apocalyptic. At Forsyth Barnes we are looking beyond these doubts that London may lose the financial technology stronghold that it has built over the last five years.

Why are we so bullish?

London’s Fintech boom appears far too strong for the European Union to disregard. The one license regulation that gives Fintech companies and banks access to the EU is the driver of growth in the city. It means digital transfers can be made freely across Europe. Historically, the European Economic Area appears to give favorable regulation rights to areas that encourage investment that benefits the EU.

Naturally, uncertainty has created a gloomy outlook, and it would be wrong to not address what has caused panic in the financial industry. Harriet Agnew and Emma Dunkley’s article in the financial times, although damning, pose valid threats to Fintech. We have dedicated specialists in this sector, and therefore we won’t be turning a blind eye to such threats. The key question that has surfaced is Britain’s access to the single market. And regulatory rights for the sector.

Without this access, financial technology companies could lose passport regulation rights. Digital transfers could no longer be freely made under one license. Individual licenses would have to be sought by banks and Fintech organizations to each European state. Operations would become costlier and less streamlined. ‘Less streamlined’ is not in the Fintech make-up.

Also, no access to the single market means no access to the EU talent pool that is major fuel to London’s rapid financial technology acceleration. These are the threats that could usher major banks out of London. Concerns are that Fintech companies will follow. Fintech and major banks have a symbiotic relationship.

Depressed about fintech’s future yet?

There is no need to be. Chris Skinner’s post for Quartz gives us reason to be optimistic. The European Economic Area has a history of not shutting the door on potential investment that will prove beneficial to the EU as a whole. Take Switzerland and Norway. Two states that are not part of the European Union.

Both states have received special regulatory ‘passport’ rights under the European Economic Area, allowing banks and corporations operating there to easily access the EU under one license. Why are they given this ‘passport’? They provide too much investment opportunity for Europe.

London has the financial infrastructure in place. The majority of financial giants operate in London. Common language attracts global banks. London is an ideal environment to access the whole European market. This framework caused the Fintech boom:

“Britain’s London-focused fintech sector was the biggest in the world last year, earning 6.6 billion pounds in revenue to beat California and New York, according to a report by accounting firm EY commissioned by the British government” Richa Naidu, Reuters

This infrastructure and indisputable investment to London cannot be ignored by the EU. The EU needs a booming London as much as London needs the European single market. In terms of employment, revenue and investment, London’s Fintech industry leads the way. Many believe that the UK’s financial industry will receive a regulatory ‘passport’ by the European Economic Area. If so, operations will remain streamlined. London will remain attractive. Fintech will continue to flourish.

Today, hopes of regulatory rights for the UK have been given a huge boost. Steven Swinford’s article for the Telegragh draws hope that Europe is ready to reform and negotiate the freedom of movement of both capital and people. It includes comments made by French Finance Minister Michel Sapin. He offers hope that the EU is ready to negotiate with the UK.

“That is something that is very important for the UK with all the questions about financial services, so we discuss everything.” Michel Sapin, French Finance Minister, The Telegragh

As the vote to Leave becomes more of a reality, it will be easier to address Fintech’s future. Unpredictability has characterized the industry over the past week. Doubts are already surfacing whether Britain will even leave the single market. Brussels has a history of sitting down, listening, and negotiating. It is important to remain positive about the future of Fintech.

At Forsyth Barnes, we will continue to monitor the implications Brexit will have for the Fintech sector. We remain buoyant and will ensure we are best placed to provide recruitment solutions.