If, as has been argued, the UK referendum for leaving the European Union was the first case of a major democracy voting against the impact of globalisation, the question arises could Brexit spell the end for the UK’s fintech advantage? London is regarded the fintech capital of the world, with fast growing fintech hubs in Manchester, Leeds and Edinburgh, all contributing to a sector worth over £7bn.
According to the head of fintech, Matt Hopkins, at BDO, the finance giant, UK will remain the sector’s leader. First and foremost, fintech requires an ecosystem economy and London’s is virtually unmatched.
On the supply side, UK has mature and liquid capital markets, an integrated financial services and technology talent pool, supported by an agenda-setting regulator and judiciary, as well as unmatched access to specialist accounting, regulatory, and legal professionals.
Also, of course, there is regulation. Any agreement with the EU in principle in respect of equivalence is not in itself something to be feared. Britain is a global leader in regulation – and it is in its conduct environment that has set the foundations for much of its fintech growth and influence. Even a hard Brexit will not reduce the UK’s influence in global regulation.
As Hopkins says as an example, UK is a key member of the Financial Action Task Force and the Global Financial Innovation Network, and to continue to set the regulatory agenda within the international frame.
Meanwhile, in the UK’s tech sector, growth cooled to its slowest pace in three years at the end of 2018 as political uncertainty and global trade frictions dented industry confidence.
Tech companies also reported the sharpest fall for seven years in backlog work, suggesting a lack of new work to replace completed projects at the end of 2018, according to the latest quarterly KPMG tech monitor index.
The index returned a value of 52.4 for the last quarter of last year, down from the score of 54 recorded in the previous quarter. A figure greater than 50 reflects that there is growth in the sector. Vice chairman at KPMG, Bernard Brown, said that despite the reduction in growth “buoyant staff hiring and capital expenditure plans are still in place for 2019.”
He added: “This confidence is reflected in the statistic that almost 50 per cent of the UK tech firms intend to add jobs over the next year, while many traditional manufacturers are considering moving jobs offshore.”
Some tech companies responded to the challenging environment by putting the brakes on hiring at the end of last year but employment continued to rise in the sector overall.
But fintech will be looking to avoid the same reputational issues that are currently plaguing the tech giants. This provides an opportunity as well as a need for the proactive and trusted regulatory leadership that the UK provides. Of course, a no-deal Brexit would not be the choice of much of Britain’s business community. In an increasingly global world, it will present some difficulty.
But given the environment — not just in London but across Britain — Hopkins says that the fintech sector will continue to thrive.
And the immediate regulatory and legal impact of a no-deal outcome on a nimble fintech business is much less than for legacy financial services businesses encumbered by legacy infrastructure and contractual arrangement. The one problem is access to talent, which as one knows, fuels the fintech ecosystem.
While the EU 27 capitals are welcoming skilled individuals from all over the world, the UK, whether by perception or reality, is putting restrictions. The Brexit debate seems to have been threaded by reference to migrants from various countries jumping the queues to enter Britain.
Latest figures show that there is a considerable reduction in migrants from the EU and many have returned to their countries.
What would be a help, which the UK may well be working on, is a straightforward immigration and visa system designed for a mobile workforce. Brexit does not pose an existential threat to fintech. Of course, if it were to remain in the single market, that would accelerate its fintech advantage but even with on-deal the UK is still ahead. Fintech is the jewel in UK’s crown, and as long as it can keep attracting talent, and that talent is allowed through the visa or immigration system, the UK will lead the field.
(The author is our foreign correspondent based in the UK. He can be reached at andyjalil@aol.com)
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