With a no-deal Brexit becoming a real possibility, the fintech sector is trying to gauge how it will impact business. Here, Richard Litchfield, Head of Operations at P2P lending platform Lending Works, takes a look at some of the possibilities that may lie ahead in the event of the UK walking away without a deal.
In an age where even established financial services aren’t sure precisely what impact a no-deal Brexit could have on the way they operate, it’s understandable that a relatively young industry like fintech is not able to move forward with any certainty, either.
Below, I’ve taken a look at three major areas of concern for fintech firms going into Brexit, and how they may be influenced by a no-deal outcome to negotiations.
One benefit that fintech firms have enjoyed with the UK as part of the EU is passporting — a policy that allows companies authorised in a country within the EEA to do business in any other EEA country. A no-deal scenario could see this process ended. This would have huge ramifications for fintech firms who rely on the European market for a sizeable chunk of their trade, especially smaller enterprises that won’t be able to weather such a drastic shift.
The total loss of this passport would make doing business on the continent more expensive and administrative, as authorisation would need to be obtained in each state. As a result, we could see some fintech companies upping sticks and moving their headquarters to an EU country or establishing an EU-based subsidiary.
Another issue that could be set to affect fintech firms in the event of a no deal Brexit is a huge shrinking of the pool when it comes to recruiting new talent. Speaking from experience, since the vote in 2016, it’s become more challenging to find employees with the right skillset in the fintech sector as EU-based candidates turn away from the UK. And, if we walk away with a no-deal, things could get even worse.
The UK fintech sector relies on attracting the best and brightest from across Europe, and if we end up imposing limitations on the freedom of movement in the form of expensive work permits and admin, this could become a major issue. However, there are arguments to be made that this could be a good thing for the UK talent pool in the long run, as we’re forced to look closer to home for the next generation of fintech innovators.
There’s little doubt that a no-deal Brexit will plunge the UK’s economy into uncertainty, with many established sources, including the Bank of England, issuing stark warnings about the economic dangers of a no-deal. While a 2018 stress test by the BoE found that the UK’s big banks should withstand the effects of no-deal Brexit, they have a staying power that fintech firms — many of which are start-ups or SMEs — simply don’t have. That being said, the adversity of the 2008 recession led to the rise of challenger banks, so who is to say that more agile and adaptable fintech companies won’t be able to find success in a challenging financial climate?
These are my three picks for ways the fintech sector will be affected by a no-deal Brexit. There’s still some time to go before the end of March, and a deal is still possible, so it remains to be seen if these are the factors the industry will need to deal with in the future.