Steve Gibson, CEO of Euclid Opportunities, looks at what Brexit will mean for the UK’s FinTech firms.
By now we have all digested the news that Britain will be leaving the European Union.
The focus has shifted to the form of our exit; will it be a “hard” or “soft” Brexit and what do those terms really mean.
Within the City, there is still significant uncertainty around what deal the government can secure for the UK and whether “passporting”, the process by which entities can trade across the single market, will be allowed to continue. Without it, any UK-based firms’ activities in the rest of Europe would undoubtedly be limited. The FinTech sector is no less anxious.
A leading FinTech hub
While we do not underestimate the many challenges that the London FinTech sector is facing, it’s important to remind ourselves of why London became Europe’s leading FinTech hub and that its strengths will endure whatever the Brexit outcome.
London’s position as a world-leading financial centre which attracts a vast pool of financial and human capital, has strong government backing and a favourable time zone bridging Asia Pacific and the Americas, means that it will continue to thrive and maintain its position as Europe’s FinTech centre.
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By far the largest centre in Europe for FinTech funding by both deal volume and value, it’s unlikely that Brexit will cause this to significantly lessen. Investment funds still need a home, and with some of the most innovative and exciting FinTech firms located in London, it’s extremely likely that this capital will remain accessible for home grown local firms.
Home to many of the world’s leading universities, research centres, technology companies, financial institutions, law and accountancy firms, the UK benefits from the network effect of its successes and attracts some of the best talent in the world.
A reputation established over hundreds of years, this brings stability and expertise not easily replicated elsewhere.
Most importantly, a vibrant entrepreneurial community has emerged with well-established mechanisms and tools such as technology labs, accelerators and startup work spaces having become widely available. It is the passion and dedication of London’s entrepreneurs that will carry the FinTech sector through the uncertainty of Brexit, and in this community we have the upmost confidence.
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There is no doubt that Brexit breeds opportunity for FinTech firms that can adapt to new regulatory regimes, speed up transformation and develop increased efficiency in challenging conditions.
While many clever technologies such as artificial intelligence, distributed ledger technology (DLT), machine learning, and cloud computing have come out of Silicon Valley, the application of such technologies in the world of financial services is now happening at rapid pace all over the world.
Companies focused on services around regulatory reporting, DLT, trade data, and enrichment and distribution of transaction information in the form of smart contracts will come out top. However, it’s the convergence of all of these clever technologies which is most powerful and will really make changes to the financial services industry.
Regulation and innovation
As the European Union sharpens its sword for Brexit negotiations to commence, we can expect the regulatory perimeter underpinning the single market in financial services to expand to capture these innovations.
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It is vital that the FinTech industry plays its role in ensuring that we get these regulations right and that the UK government continues to maintain its support for up-and-coming businesses through the FCA’s Project Innovate programme and Regulatory Sandbox.
Predisposed to thrive in an uncertain world, the financial services sector continually evolves creating solutions to problems that many previously didn’t realise existed. We saw this during and after the financial crisis which led to the creation, development and growth of some of today’s most successful London FinTech firms.
The necessary and inescapable changes wrought by Brexit will inevitably spur additional innovation and FinTech firms are uniquely positioned to provide the required solutions. The phrase, “necessity is the mother of invention,” has never been more apt.