Brexit is already hurting UK fintech

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The UK's fintech industry has had some time to digest the implications of June's Brexit vote, and its reaction thus far does not seem overly positive.

At The Telegraph's Future of Fintech conference this week, three fintech leaders sharedtheir opinions on Brexit's impact on UK fintech to this point, and their concerns for the future.

  • Christoph Rieche, chief executive of Iwoca, an SME financing startup, said that London is already losing its lead over rival European fintech hubs at a time when it should be doing its utmost to keep traction. He said this was due in part to the lower volumes of investment into UK fintech in the wake of the June referendum.
  • Anthony Olsen of money transfer firm Remitly expressed concern that UK fintechs could lose their passporting rights to operate in the EU. He said that to safeguard against this, Remitly would consider becoming dual-licensed, i.e. obtaining a license in another EU jurisdiction to complement its domestic license should the UK lose access to the single market. He added that fintechs were likely to concentrate their efforts less on the UK market going forward as they redirected resources, including staff, toward other EU bases.
  • Fransisco Lora, managing director of accelerator Startupbootcamp, meanwhile, said that London is already falling behind in attracting entrepreneurs, and his biggest concern is that London could become unwelcoming to external talent by putting out signals that it isn't "open for business."

The biggest problem for UK fintech still looks to be uncertainty.The government still hasn't given a clear indication of what Brexit will look like when it happens — and in particular, whether UK firms will be able to retain easy access to the EU's single market and talent. As a result, UK-based fintechs are being forced to hedge and plan for both outcomes. This is a drain on resources and an obstacle to decision-making, which may partly account for the loss of momentum. It seems probable that UK fintech will continue to suffer for as long as the government fails to make its Brexit stance explicit.

By contrast, fintech regulations in the U.S. have been extremely restrictive thus far. But those in Europe have proven successful and allowed the region to become a hub of financial technology innovation. The U.S. would be wise to examine the policies in place across the pond and consider how to implement similar ones within its own borders.

The fintech industry is booming, with VC-backed fintech investment growing 106% to reach £10 billion ($13.8 billion) in 2015. But the new business models fintechs are bringing to market also need to be regulated, and the old models aren't sufficient. The approach regulators take will have a significant impact on how big fintech gets and how fast it gets there.

Sarah Kocianski, senior research analyst for BI Intelligence, Business Insider's premium research service, has compiled a detailed report on fintech regulation that explains how regulators in Europe are successfully growing fintech innovation and how it's becoming a model for regulators around the world.

Here are some of the key takeaways from the report:

  • The financial technology sector is booming, and Europe is a leading region for growth. VC-backed fintech companies in Europe raised £1 billion ($1.5 billion) in funding across 125 deals in 2015.
  • With this boom in funding comes a need to regulate the nascent industry. There are a variety of approaches — active, passive, and restrictive — that regulators can take. The EU and the UK, in particular, have taken an active approach, in order to encourage growth.
  • The regulation that will have the most impact on the European fintech market is the Second Directive on Payments Services, known as PSD2. It will force banks to open up their systems to fintechs. This will allow fintechs to act as intermediaries between banks and their customers.
  • The UK regulator is actively promoting its approach to regulation as a model for other countries to follow. Some of its innovations are already being copied by other regulators around the world.

In full, the report:

  • Examines the different approaches to fintech that regulators can take
  • Explains the key EU laws that will affect the European financial services industry in the next two years and beyond
  • Explores the potential impact of new regulations
  • Details the workings of the initiative central to the UK regulator's approach to fintech
  • Highlights what can be achieved when regulators, governments, and fintech companies work together

To get your copy of this invaluable guide, choose one of these options:

  1. Subscribe to an ALL-ACCESS Membership with BI Intelligence and gain immediate access to this report AND over 100 other expertly researched deep-dive reports, subscriptions to all of our daily newsletters, and much more. >> START A MEMBERSHIP
  2. Purchase the report and download it immediately from our research store. >> BUY THE REPORT

The choice is yours. But however you decide to acquire this report, you’ve given yourself a powerful advantage in your understanding of fintech regulation.

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