Keith Maner, compliance and technical manager at compliance specialists Thistle Initiatives, explains how the UK regulators are approaching Brexit and how fintech firms in particular are reacting to the issue
In April 2017, the Prudential Regulation Authority (PRA) issued a “Dear CEO” letter to all its regulated firms asking for information on their contingency planning for the UK’s withdrawal from the EU. This is to ensure that the UK maintains a position of financial stability.
The PRA will also use the information received to inform its own Brexit contingency plans and the chair of the Treasury Select Committee, Nicky Morgan, requested details of this exercise to assess just how ready firms really are. Meanwhile, the Financial Conduct Authority (FCA) has posed a series of questions to twenty of the UK’s largest asset managers on their Brexit contingency plans, asking for information such as anticipated capital impacts and the status of overseas licence applications.
Whilst there remains an enormous amount of uncertainty surrounding Brexit negotiations, there are also clear benefits to planning for the worst. Should no agreement be in place by the time of the UK’s withdrawal in March 2019, there will be far-reaching implications for any firm currently relying on passporting arrangements for cross-border EU business.
In order for impacted subsidiaries or branches to continue operating in their current jurisdictions (UK and mainland Europe), new authorisations or licences may be required. Indeed, some firms may wish to consider withdrawing from certain markets altogether. Each firm will be faced with a range of options, some of which will clearly be less palatable than others.
The shockwaves caused by the UK’s decision to vote for Brexit in last June’s referendum have certainly reached the fintech sector, with three questions in particular now troubling many:
• Will the UK now become less attractive as a talent pool for young entrepreneurs?
• Will start-ups’ access to capital be jeopardised?
• What access will UK fintech companies have to the single market once Brexit is completed?
It is important to stress that such concerns remain purely hypothetical, given that negotiations over the terms of Brexit are unclear. However, despite this uncertainty we have found the impact Brexit has had on early stage start-ups to be minimal at the moment.
One of the key areas of speculation is whether London will remain the ‘fintech capital of Europe’ or be surpassed by cities such as Paris or Berlin. However, rather than seeing these cities as competition, there is a positive story to be told around increasing innovation across Europe.
It’s also important to stress that London’s pre-eminence in the fintech space is the result of a number of disparate factors, many of which are unaffected by Brexit. The UK has always encouraged innovation and “critical to this has been a forward-thinking, open and collaborative regulatory regime driven by the FCA,” according to industry body Innovate Finance.
The fact that London is home to such a large concentration of financial services businesses and technology companies, in close proximity to one another, is also a natural advantage.
In fact, the UK’s fintech sector has continued to progress since the Brexit vote. Some examples include the fintech bridges forged with China, South Korea, Singapore, India and Australia. Japanese tech firm Softbank, meanwhile, has said the headquarters for its £80bn technology investment fund will be located in London, which is an encouraging sign for investment.
Thistle Initiatives offers Brexit advice services to all types of firms who may be affected.