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UK Poised to Become Natural Global Home for Fintech in the Face of Brexit

Just last month, the Chancellor of Exchequer Philip Hammond confirmed the agenda to position Britain as the natural global home of new and innovative financial services after Brexit. UK expertise in both established and emerging financial systems is expected to be a boon for the country’s economy, businesses, and people. With this vision, the country is poised to take leadership in global efforts for the regulatory design for crypto assets and innovative blockchain technology. 

It’s important to note how the UK fintech sector is unrivalled, especially compared to its counterparts in other EU nations. In fact, the UK is home to 28 of the region’s top 50 fintech firms, generating £20 billion in annual revenue. However, the UK isn’t content with that alone.

The Chancellor’s ambitious goals for the British fintech sector was reflected in the recently held Autumn Budget, which was moved to an earlier date in order to avoid clashing with the final Brexit negotiations this month (November). 

The key points in the Budget include the allocation of £1.6 billion for science and innovation, specifically in areas of artificial intelligence, quantum computing, and future manufacturing. The government will also support private startups by providing increased access to financial benefits such as pension fund investments and policies to improve business productivity. 

On the other hand, large digital firms will be taxed 2% on revenues they earn involving UK users, starting April 2020. The tax will be used to create an ecosystem designed to support smaller businesses, which will be especially crucial in post-Brexit UK. The chancellor explains, “It is only right that these global giants, with profitable businesses in the UK, pay their fair share towards supporting our public services.”

All in all, these initiatives are a continuation of last year’s Autumn Budget pledge, which revealed a £20 billion investment set for financial innovation over the next decade. These coincide with Hogan Lovells Financial Institutions Group Head Rachel Kent’s sentiments on the importance of financial innovation post-Brexit. 

However, there are still issues that need to be addressed in light of the impending exit. Kent added that the UK has to remain aligned with the EU in terms of a financial services free trade agreement. Passporting, or the ability of companies to obtain single authorisation to access EU jurisdictions, is key to driving capital and cost efficiencies. Otherwise, the UK will have to set up subsidiaries in the EU and obtain new local licenses. 

In the midst of all the uncertainty, three UK fintech firms have set up base in the Holland to reinforce their standings with European customers. These companies are already securing licenses from the Netherlands central bank, and are set to begin business in time for next year’s Brexit. So far, the startups claimed to have no difficulties in hiring a non-British workforce.

This is one of the solutions UK fintech firms can do in preparation for a post-Brexit country. Another situation that would seemingly be a challenge at first but could be turned into an opportunity is the expected volatility of the pound. FXCM’s economic calendar provides an overview of how even the smallest of events or speculation on Brexit can influence the value of the pound. For example, it was recently reported that the simple rumours of a secret Brexit deal secured by Minister Theresa May have made the pound’s value skyrocket. If startups in UK’s fintech sector were to expand in the EU or anywhere else, their move should ideally be timed with such events in favour of the pound. This would help boost the country’s economy as well as create further jobs and prosperity.

It’s clear so far that the EU would need the UK to keep financial markets going after Brexit. But with no trade deal set in stone, things could get very complicated. If a hard Brexit were to happen (no deal settled), talent acquisition would be one of the major hurdles for UK fintech businesses. Nevertheless, the UK is still the leader in fintech in Europe, and with Budget plans underway, it will seemingly remain so for years to come.

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