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What Brexit Day means for the future of fintech

The UK officially left the European Union on 31 January and will be entering an implementation period, which is due to last until 31 December 2020.

Here’s a compilation of brief thoughts from founders of fintech firms on Brexit day.

During the implementation period, EU law will continue to apply, firms and funds will continue to benefit from passporting between the UK and EEA, and consumer rights and protections derived from EU law will also remain in place. But this hasn’t brought a lot of certainty for the financial services sector in the long-term.

In fact, there has been great debate as to what this will mean for the financial services sector and the economy as a whole.

A recent report by Bovill showed that more than 1,400 EU-based firms have applied for permission to operate in the UK after Brexit, with over 1,000 of these planning to establish their first UK office, which seems positive for the UK’s post-Brexit landscape.

However, various news outlets have been reporting large moves from big players in the City to the continent since the day of the referendum.

See also: A thousand EU financial firms plan to open UK offices after Brexit

Financial News notes that: “at least eight of the largest investment banks in London, including Bank of America Merrill Lynch, Citigroup, Goldman Sachs and JP Morgan, will shift a significant proportion of their operations to Europe irrespective of the outcome of Brexit.”

What do people in the industry really think now that Brexit day has come and gone?

Banks are already preparing to move hundreds of billions of dollars from London to the continent after Brexit. Deutsche Bank is reportedly set to shift €400bn from its balance sheet to Frankfurt, while JP Morgan will move €200bn to the German city, according to an EY report.

An updated report from thinktank New Financial suggests that 332 financial services firms have already moved jobs out of London because of Brexit, up from 60 last time they looked in March 2019.

But what do people in the industry really think now that Brexit day has come and gone? Here’s a compilation of brief thoughts from founders of fintech firms, European government officials and banking foundation executives.

Hans Tesselaar, executive director, BIAN 

“There is no denying that Brexit will change the financial services landscape as we know it. Whether it be regulatory, trade deals, or even where financial companies are based.”

“What needs to stay a constant, however, is the need to create modern banking services fit for the customer of the future. To do this, banks and fintechs must not see Brexit as a barrier to cross-industry collaboration, but rather a way to encourage innovation in a cost and time effective way. Those who fail to understand the benefits of collaboration at this difficult time, will be left to weather the Brexit storms alone.”

Catherine Birkett, chief financial officer, GoCardless

“Whether the epicentre moves from London to Europe will depend on two things: one will be if we don’t get a deal with Europe, and two will be if European countries become bigger international trade players off the back of Brexit. If these two things happen then the ‘epicentre’ label is still open to debate.”

“In the end, Europe probably needs London. In theory, the UK is so global it should remain the epicentre, but if European countries get ahead in talks with countries such as the US and China then it could challenge this theory.”

Birkett: “In the end, Europe probably needs London.”

“Until trade agreements are finalised, we’re not finished with Brexit. Now, the UK must negotiate individual contracts with our trading partners worldwide. This is a critical period; with very little time and the pressure of landing a good deal with Europe crucial to strengthening our hand elsewhere, businesses will keep a keen eye on these ongoing talks.

“The priority for UK fintech is passporting our licenses so we can continue trading with the EU without tariffs. We also need to prevent Brexit from damaging our access to talent through immigration. Business leaders need to keep pushing the government to avoid making deals that are harmful to business. We need common sense to guide negotiations and we can’t rest until the ink is dry on the final agreements.”

Freddy Kelly, CEO and co-founder, Credit Kudos

“Certainly, Brexit will bring challenges this year, however we’re only just scratching the surface of these collaborations and so in 2020 I believe we’ll see many more successful partnerships coming to fruition and continued high levels of investment as a result.”

Read more: Industry undecided on UK’s fintech funding success

Siim Sikkut, chief information officer, Estonia government

“The United Kingdom is leaving the European Union [on 31st January], but for IT workers who want to continue to enjoy all the many benefits of Europe’s political and economic partnership, no matter what happens with Brexit, our doors are always open.”

Sikkut: “live easy by taking your skills to Estonia!”

“We are already Europe’s top-rated nation for entrepreneurialism, and we are number three in Europe in terms of the number of start-ups per capita. While Estonia may be small, we have the most unicorns per capita, companies valued at greater than $1 billion with many more companies popping up every day. That means around 3,700 Estonian companies are currently hiring!”

“Alongside this we have a rich history and culture, crime rates are low, sustainability is high on the government’s agenda, and rent in Tallinn is 3x cheaper than in Amsterdam and 8x more affordable than San Francisco.”

“So, our pitch to you Brits is this: don’t worry about Brexit; accelerate your career, join the true digital society and live easy by taking your skills to Estonia!”

Markus Kuger, chief economist, Dun & Bradstreet

“Despite speculation and calls for monetary stimulus, the decision from the Monetary Policy Committee to maintain interest rates is not surprising with the Brexit [day] now upon us. With consumer prices growing by the slowest pace in three years, global headwinds are likely to continue to impact the outlook for the British economy and Dun & Bradstreet’s latest report forecasted real GDP growth of just 1.3% in 2020.”

“Businesses still face uncertainty about the real impact of Brexit, but our data also shows positive signals such as an overall reduction in corporate liquidations (down 1.1% year on year) and an improvement in the percentage of B2B payments made on time (average delay down to 13.5 days, closer to the European average).”

Ivan Ashminov, co-founder, Trading 212 

“In light of Brexit, the question of how financial regulation in the UK and Europe will diverge in the future means it’s more important now than ever for companies to be prepared. Companies like ours, operating in the fintech space should focus on being fully licensed and regulated within across the EU, to make sure that European-based clients are serviced as normal.”

Ashimov: “fintechs could turn away from Europe as the default choice for expansion.”

“In addition to the typical day-to-day operations, diverging regulation could also mean different client onboarding procedures (KYC), product features, and backend systems, which would make fintechs’ expansion more difficult and expensive. And with expenses rising, in the future, if regulation becomes a challenge, fintechs could turn away from Europe as the default choice for expansion, looking instead to US, Latin America, and Asian markets.”

Jonathan Jensen, director of identity verification, GBG

“In terms of what [Brexit day] means for identity verification and anti-money laundering (AML) compliance, the short answer is ‘no change’.”

“The UK remains aligned to the EU until 31 December. In fact, just before Christmas the government published The Money Laundering and Terrorist Financing (Amendment) Regulations 2019 – which transposed the European Union’s Fifth Money Laundering Directive into UK law and which is now (in conjunction with MLRs 2017) the primary legislation against which UK-regulated organisations are subject. These came into effect on 10 January, so the UK is up to date with current regulations.”

“I don’t see any plans to diverge from mainstream AML regulation over time because they are a vital part of the fight against financial crime and would put the UK’s financial system at a serious disadvantage if the UK was perceived to be lax in this area. Plus, ultimately the guidance stems from the Financial Action Task Force and is laid down on a global basis.”

Related: Preparing your fintech to thrive despite Brexit uncertainty

“In terms of fintech, I’m feeling positive. The UK, and London in particular, has so much to offer fintech – from a helpful regulator (the FCA), to talented people, to a great supporting infrastructure that underpins vital aspects of what they do. There will likely be some bumps ahead and issues to resolve, like what comes after ‘passporting’ for financial services but with the right approach these can be resolved.”

Tim Nicolle, group CEO, PrimaDollar

“There is no certainty available as to how the regulatory landscape will evolve post-Brexit. This meant that we had to accelerate our plans to deliver the certification. Now in place, the certification will continue to benefit our lenders across the EU, as well as in the UK going forward.”

Gandhi: “69% of tech start-ups fear that Brexit will hinder their ability to hire the staff they need to help their business grow.”

Ritam Gandhi, director and founder, Studio Graphene 

“The day has finally arrived. For some, #BrexitDay will herald new-found certainty, while for others it will raise apprehensions about the coming months and years. Either way, we’ve reached the point of no return. “

“But what next? This will be the question on the minds of many business leaders, particularly those in the tech sector. After all, 69% of tech start-ups fear that Brexit will hinder their ability to hire the staff they need to help their business grow, according to Studio Graphene.”

“So, as the UK and EU try to make sense of their new relationship, tech businesses must take steps to future-proof their strategies. Various plans of action can offer partial peace of mind in the post-Brexit frenzy. Opening a new office abroad or upskilling existing employees, for example, are viable options – so it’s worth doing your research.”

“The UK tech sector is robust; this has been demonstrated time and time again. We must only look to record-breaking levels of VC investment being poured into the sector to realise its promise. However, the next few years won’t be plain sailing. Businesses should take heed of any, and all, advice on offer to ensure they remain competitive and adaptable.”

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