The Government's Brexit fintech ‘sector analysis’ runs to a whole four pages

By Daniel Lanyon on Thursday 4 January 2018

OpinionSavings and Investment

Much waited and debated, the vaunted “impact assessment” for fintech is light on detail, to put it mildly.

Much waited and debated, the vaunted “impact assessment” for fintech is light on detail, to put it mildly.

Anyone hoping for a gaze into the UK government or civil service’s crystal ball on the outlook for the disruptive end of finance will be disappointed. Of the 39 Brexit ‘sector analysis’ reports released just before Christmas, the one dedicated to fintech is among the shortest of the lot at just four pages long.

As expected full ‘Impact Assessment’ style reports were not released, as they “do not exist” but the Exiting the EU Committee did see fit to release “ a wide mix of qualitative and quantitative analysis contained in a range of documents developed at different times since the referendum.”

Unfortunately, the sector's outlook during and after Brexit was left out:

Source: HM Treasury

That being said the report does hold some interesting nuggets of information on how the government considers the nascent industry. This includes recognising that fintech employs around 61,000 people in the UK and whilst it is concentrated in London also has some dedicated outposts in Edinburgh, Belfast and Cardiff.

In addition it helpfully segments fintech into four distinct areas of the market: investment, advice and neo-banks; back-end systems and compliance; payments and technologies underpinning digital currencies and lastly alternative finance.

It also was breaks down the regulatory regime for both UK and the EU.

The current EU regulatory regime, it says, is non-existent with fintech firms are regulated according to the activity they carry out.

However, the report also states the main activities affected by EU regulation are neo-banks - regulated in the same way as other deposit-takers and payment firms which are covered by the current Payment Services Directive, the Payment Services Directive II from 13 January 2018 and the second E-Money Directive.

Alternative finance firms meanwhile, such as lending platforms, that are engaged in the trade of transferable securities are subject to the Markets in Financial Instruments Directive (MiFID) and of course MiFID II.

“Other areas such as alternative finance and digital currencies are generally not regulated at the EU level, though the European Commission has stated that it is exploring whether European-level policy action in this field is needed,“ it states

“Beyond financial services regulation, there is a clear read-across for FinTech firms from EU regulation around the handling, storage and protection of data, since this is a key requirement for many of the business models," it adds.

How will this affect future fintech trade, capital and labour after Brexit? The report gives scant clues apart from concluding: "The Government has been clear that it is seeking pragmatic and innovative solutions to issues related to the future deep and special partnership that we want with the EU." 

You can read the full report here.

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