The UK has been the leader of fintech regulation and leaving the Europe Union could make it even stronger, Moriah Costa examines in the last of a special three pieces on the impact of Brexit on fintech.
Although there is a lot of uncertainty about what Brexit means for fintech and the broader financial sector, it could also help the UK drive the next stage of innovation.
The UK has spent decades building up a welcoming regulatory environment, especially for fintech. While Brexit could lead to financial regulation changes, many industry leaders don’t expect it to have a negative impact on fintech.
Some even think it could have a positive impact.
Leaving the EU means that the UK could reform out of date regulation, increase the speed at which regulations are implemented, and could even allow the Financial Conduct Authority to make fintech regulation even more welcoming for firms, industry leaders say.
"In a lot of areas the UK has proved to be a testing ground for regulation before they've been embraced by Europe as a whole,” Dominic Hill, a partner at law-firm Hogan Lovells, said at a Fintech Connect conference in December. “Even after Brexit I think there is a possibility that the UK can continue to be a proving ground for new technology and regulation."
The government has one of the strongest and most consumer friendly frameworks in Europe, said Gionvanni Dapra, co-founder and CEO of robo advisor Money Farm, which also has offices in Italy.
“The UK is probably the best regulator environment so if anything, it’s going to be Europe that would suffer potential of not having the UK on the table when financial regulation topics are being discussed,” he said.
Katie Prentke English, commercial director at Nutmeg, does not expect any changes in existing EU regulation change to make any difference for the wealth management start-up.
“The FCA has been a global leader in wealth management regulation – it’s forward-thinking, engaged with technological change, and receptive to industry feedback and consumer needs,” she said. “We don’t expect the quality of UK regulation in our sector to change meaningfully after Brexit.”
The robo advisor is already looking to Asia to expand and is not focused on Europe, she said. The firm raised £30m from Hong Kong-based financial advisor firm Convoy in November.
While Prime Minister David Cameron’s administration was clear about their commitment to the fintech sector, Theresa May’s government has been far less vocal. Some administrators have publicly noted the economic importance of fintech, but “we'd like to see that being said by people even higher up in government,” said John Battersby, director of communication and policy at RateSetter.
Others in the fintech sector have also pointed out the government’s lack of clarity and discussion with business leaders.
Bruce Davis, managing director of crowdfunder Abundance Investment, told a House of Lords committee in early November "that we have been shut out of those discussions, particularly around the development of the prospectus directive, which will have a direct impact on how our business is run.”
While Battersby said he would like to see more clarity from the government, he’s optimistic about the future. RateSetter already has experience converting its business model to another country: it established an Australian division in 2014. The company is not currently looking to move to Europe, but remains “open-minded” about the future, Battersby said.
“Not everything has to hang off a trade deal or a treaty and if you've got a good idea and you find people to work with that are going to be able to put [together] that great idea, it will happen,” he said.
Other alternative financing companies are just as optimistic.
The start-up uses automatic algorithms to manage the risk of portfolios on a daily basis. Its UK portfolio’s are up about 16 to 20 per cent, which includes the impact of the June referendum, he said.
“That doesn't make me that nervous, the idea that Brexit is happening,” he said. “Unfortunately we just have to wait and see.”
The UK has spent decades establishing a welcoming regulatory environment for innovative companies. While there are a lot of unknowns about the future of the UK outside of the single market, industry leaders are confident that the country will continue to be a hub for fintech. But with two years of negotiations ahead, the young industry could go anywhere.
Click here to read part one: The Brexit risk to the UK's status as 'fintech capital of the world'
Click here to read part two: How the UK became the 'fintech capital of the world'