What Lies Ahead for a British Fintech Industry Outside the EU

The UK has seen many of its businesses leave the region in preparing for the worst.

Although Brexit has once again been postponed for January 31, 2020, much of the uncertainty around the decision has already taken its toll.

Great Britain, a financial giant in Europe and beyond, has seen many of its businesses leave the region in preparing for the worst.

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Still, commentators in the UK and EU are divided on the specific outcomes, specifically for the fintech industry, of a post-Brexit union.

British Growth still Depends on Access to Europe

Since the Brexit referendum in 2016, British and European leaders have held near-endless negotiations on the future of both territories.

For those unaware, UK citizens voted in a slim majority to pull the collection of nations out of the European Union.

The campaign was led primarily by figures like Nigel Farage, Dominic Cummings, and the current prime minister, Boris Johnson.

Despite his best efforts and an agreement with leadership in Brussels, Johnson’s deal for leaving the European Union by October 31, 2019, was shot down in British Parliament.

The final decision has now been extended into next year, with a preceding snap election in December and rumors of a second referendum.

But regardless of which camp wins, the uncertainty over the past three years has already damaged many prominent British businesses.

Even industries as robust and fast-growing as fintech have reported partial moves to secure EU states like Germany, France, Holland, and Ireland.

TheCityUK, a British financial advocacy group, reported in 2017 that the fintech industry employed over 60,000 people, is worth more than €8 billion to the British economy and boasted nearly €15 billion in investments made in the sector within the first half of 2018.

These figures are predicted to continue but hinge on a several factors each of which would be affected by any kind of Brexit deal.

In the first, recruiters will need to consider hiring employees with skills that go beyond finance. In many cases, incoming hires may not have any background in finance.

This is because the nature of financial technologies often integrates hard skills like data science, experience with machine learning technologies, and cloud computing.

In their report, TheCityUK added that:

“Over the last few years, half (51%) of UK recruiters have seen an increase in demand from financial services businesses to hire candidates with AI skills, a 49% increase in demand for cryptocurrency, and 46% for blockchain.”

The demand for hard skills also hinges on broadening the market of potential employees. Such a pool had rarely been an issue insofar as the UK had access to a large European workforce.

Following a Brexit decision, this advantage would likely be written off. Signs of this dynamic are already playing out too, as many top graduates from European countries are shying away from crossing the Channel.

A LinkedIn Workforce survey from 2018 indicated that 20 percent of the tech graduates, those with the skills needed for further fintech growth, all come from the EU.

Amidst the uncertainty of Brexit, many of these individuals are now moving back to their home countries.

Following close behind these individuals, are larger investment firms and fintech companies moving funds and staff to so-called “post-Brexit hubs.”

New Financial, a capital markets think tank, explained that 275 British firms had already begun relocating to other European cities.

They write that Dublin, Ireland “represents 30% of all the moves that we identified, well ahead of Luxembourg with 60 firms, Paris with 41, Frankfurt on 40, and Amsterdam on 32. We expect these numbers to increase significantly in the near future.”

Despite these figures, the moves are nonetheless speculative and are a better gauge of due diligence on the part of responsible firms.

Planning for the worst-case scenario is just good business. Other commentators have indicated that the situation will pan out once the specific details of a Brexit deal are made clear.

Experts Examine all Possibilities

The founder of early-stage investment firm 10xValuePartners Christian Schroeder explained that Britain’s dominance in the fintech industry had more to do with their liberal regulatory regime than with any trade deal struck with the EU.

“The UK’s accommodating stance for venture-style firms and especially in the field of fintech,” said Schroeder, “has little to do with its relationship to the EU.”

He did, however, comment on the potential for a much smaller workforce to draw from if Britain leaves via a hard-Brexit.

And as London scrambles to train and hire the requisite local talent to fuel the booming fintech industry, other capitals are likely to capitalize on the lag.

Paris, Berlin, and Dublin, for instance, have already emerged as key cities for innovation and startup activity.

Manuel Heyden, a co-founder and CEO of the trading and investing startup nextmarkets, reminded that progress doesn’t wait around. “Paris will likely attract much of the talent that would traditionally move to London in pursuit of a career in finance. Already the city has proven itself capable of capturing European markets via liberal policies and key infrastructure,” said Heyden.

It should be noted that one of the primary advantages of Europe’s single market has been the legislative consistency across all countries.

Import and export taxes between member states is relatively uniform, local policies are respected across the continent, and investors thus enjoy a certain degree of regularity.

This, according to nextmarkets, has already come under attack since the referendum three years ago.

Heyden said:

“What we’re seeing is investors getting ‘spooked’ about a level of deregulation in Britain which would no longer meet European standards. High taxes, barriers to new talent, and all the friction caused by a European exit will be disastrous for the British fintech industry.”

It cannot be denied that Brexit has been one of the most contentious issues in recent years. It has divided families, friends, and drawn international attention to a highly-polarizing subject.

And the British government has yet to officially execute the move. Indeed, uncertainty has been the most adverse side-effect

As businesses and graduates mull over the best and worst-case scenarios, observers are already seeing how a Brexit would affect even the most vigorous of fields negatively.

Disclaimer: This is a contributed article and should not be taken as investment advice.

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