Fewer than a quarter of fintech companies say they would cope if the UK dropped out of the EU without an exit deal, with access to talent from Europe a key issue for the industry. Approximately two-thirds of fintechs said Brexit is a risk, or offers no distinct business opportunity according to the survey by trade body Innovate Finance, which canvassed 58 companies.
Although London is regularly trumpeted as a global fintech hub, including by the government, Brexit has long been considered a threat to its reputation. The lobby group TheCityUK warned in March of a “significant decrease” in French and German graduates with the skills needed to support the industry’s growth coming to work in the UK.
As fintech accelerates around the world, the UK will find it increasingly tough to keep up with the demand for skills. Its fintech industry is highly dependent on global talent — in fact, approximately 42 per cent of the current UK fintech workforce is drawn from non-UK nationals. As the sector grows, it is essential a pipeline is put in place to feed the next generation of fintech companies. A lack of available skills, either international or domestic, is cited as the key challenge many of these firms face.
While just 22 per cent of UK fintechs feel prepared for a no-deal Brexit, 55 per cent said they would feel prepared to leave following a transition period. The draft exit agreement drawn up by former prime minister Theresa May contains provisions for a two-year transition, during which the UK would continue to apply EU rules, including on immigration.
Thirty-eight per cent of Innovate Finance’s respondents said they had not yet taken any additional steps to get ready for Brexit. Those that have been preparing have focused their efforts on maintaining talent flows, the passporting of regulatory permissions and risk management procedures. Charlotte Crosswell, chief executive of Innovate Finance, said: “We would prefer our members to be focusing on their businesses, scaling up to conquer new markets, at home and internationally.”
However, the trade body insisted its members could cope with no-deal if it came to it. “If we do leave without a deal, we have a group of businesses who are nimble and who will adapt,” said Ali Griffiths, director of strategy for Innovate Finance. Industry efforts to prepare for a no-deal have started to ramp up. The Financial Conduct Authority, the UK regulator, launched a digital campaign earlier in September to help businesses to prepare.
A group of trade associations from the financial district of London also met to discuss the impact of no-deal for the financial services industry recently. Failing to get an agreement with the EU on issues ranging from common financial-services regulation to immigration rules, would mean a turbulent time for the industry. “There’s a lot of complexity,” Griffiths said. “It’s extremely difficult to get the information to educate business on what they need to do in the event of a no-deal.
“People are making preparations to the best of their ability and they will adapt as fast as they can. So, they are setting up offices in Europe, they are getting licences with European regulators. But the reality is we still don’t really know what a no-deal means for a huge number of businesses on November 1, and indeed whether they will be acting against the law in pursuing some contracts,” she said.
Former senior economist at right-wing think-tank the Institute of Economic Affairs, Catherine McBride, said that if companies were not ready for no-deal they “deserved to go out of business”. Prime Minister Boris Johnson has faced multiple setbacks to his aim of EU withdrawal by October 31 come what may.
Rebel MPs’ bill to block a no-deal Brexit became law on September 9. And two days later, Scotland’s highest civil court ruled Johnson’s suspension of parliament unlawful as did the supreme court in London last week.
Some commentators believe fintechs, many of which are start-ups, are particularly vulnerable. Rachel Kent, head of financial services regulation at Hogan Lovells, the law firm, said: “They do not have the resources that the big guys have to take external advice.”
Co-founder of the equity crowdfunding platform Crowdcube, Luke Lang, remains bullish. “People are backing fintech firms in record numbers despite economic uncertainty and the political pantomime we have witnessed recently. In the last twelve months over 80,000 people have invested more than £65 million in fintech firms raising with Crowdcube. (The author is our foreign correspondent based in the UK. He can be reached at andyjalil@aol.com)
Oman Observer is now on the WhatsApp channel. Click here
