This article was written by Dennis Owusu-Ansah, CEO and founder of TradeRiser.
Prior to the EU referendum there was a lot of speculation regarding the impact of a potential Brexit on the financial industry. The one thing that was certain was that there would be a lot of volatility in the market on the day of the vote. Post-Brexit, let’s examine what happened and what it means for the UK fintech industry.
With the pound dropping to its lowest level since 1985 and David Cameron resigning as Prime Minister, the Governor of the Bank of England came to reassure the financial industry of its contingency plan, promising £250 billion to ensure that financial institutions do not run short of cash. Although the financial institutions have been assured, it does not save them from the increased regulatory burden that will ensue as the UK prepares to exit.
Innovation for these institutions will fall even further down their list of priorities as they adjust, creating space for fintech startups to occupy. The fintech companies that will prove to be the winners will be the ones that figure out how to develop and manage distributed ledger technology that will quickly reduce counterparty risk, margin requirements, and settlement.
As these technologies come to market, they should be in a position to attract new entrants with lower transaction costs, increased transparency, and ultimately bringing increased liquidity to the market.
Some institutions may even decide to make job cuts, and this will certainly led to more fintech companies being spawned to fill the void where possible.
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Retail brokerages may have an even harder time trying to convince their clients to trade more, due to the Brexit uncertainty. The increased uncertainty will mean that a greater degree of intelligence and insight will be required when trading, in order to exploit changes in currency correlations and other non-traditional market phenomena. For this, startups that offer artificial intelligence and research assistant technology as a value added tool will prove crucial in order to stimulate trading.
Smart negotiations based on UK interests could open access to talent within the fintech ecosystem by using the immigration of non-EU immigrants. This demonstration of a desire to seek stronger ties outside the union may spur venture capitalists to funnel money into the fintech ecosystem.
Until the UK finally exits the EU, it will certainly be an interesting 2 years, and providing technology solutions that will help alleviate the challenges faced by the industry in this period can only be a great thing. My advice to startups such as ourselves is to keep persevering, be ready to pivot if the current climate demands it and build even closer ties with clients.
As always the dust will eventually settle.