After the referendum FinTech looks forward

The UK's FinTech sector is keen to understand what the leave vote will mean for it. And although there will be challenges to be solved, perhaps there may also be opportunities for the typically fleet of foot, FinTech community.

The economic and political impact may have been immediate but the UK's regulatory environment does not change until the UK actually leaves the EU, likely to be at least two years after the Prime Minister Theresa May chooses to serve a withdrawal notice. So the UK should keep matching the EU's regulatory environment until at least 2019.

Before then, the UK will be negotiating its future arrangements with the EU. It has asked business to support it by identifying priorities - creating a unique opportunity for the FinTech community to influence its future operating environment.

Access to markets

Securing passporting rights or equivalent will be a priority and is a significant concern for the financial services sector generally. But the impact on a UK FinTech company depends on whether it needs those rights to access EU markets. In start-up to scale-up, focus might be on the UK market or perhaps on activities which are not regulated in the EU markets they are targeting.

“If agreement cannot be reached between the UK and the EU on retaining a regime equivalent to passporting then firms will need to use another solution to continue trading across borders,” says Rachel Kent, global head of financial institutions at law firm Hogan Lovells.

Third Country Regime

Alternatives may include the UK adopting a "Third Country Regime" keeping its rules equivalent to EU regulations. Or companies could register and staff a group company in the EU and outsource work back to London. Perhaps a different way of collaborating with customers already regulated, may also offer options for FinTech companies.

For now, the need is to understand what options would work best for their business based on a complex matrix of decisions, including labour laws, regulatory capital and tax implications, but Kent cautions against taking any major steps until negotiations between the UK and EU progress. "Business focus should be on contingency plans and understanding the pros and cons of the various options."

Opportunities for innovation

For FinTech, this time of change may offer opportunities for those who respond well to its challenges – perhaps a need for new ways of doing business for which it designs solutions. The UK regulators' commitment to enabling innovation to flourish is well-known so perhaps leaving the EU would enable it to expand its regulatory sandbox concept or to offer an opt-out lighter-touch domestic solution for FinTech companies who are only operating in the UK.  

"One thing we can be certain of in this post-referendum world is that London will remain committed to FinTech as the UK's new regulatory landscape emerges." says Kent.

Previously published in the UK FinTech supplement of City A.M.: 

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