Fintech is one of the most promising tech sectors in the UK but it could be the one that suffers the most as a result of the UK leaving the EU.
The loss of passporting rights, which gives finance firms license to trade across all the EU, could make the concerns of startups outside the finance sector seem minor.
I listened in on a meeting yesterday between the House of Lords EU committee and three executives from the IT sector in the UK. These were TechUK CEO Antony Walker, Simon Hansford CEO at UK cloud hosting supplier UKCloud and Russ Shaw, founder of Tech London Advocates and Global Tech Advocates.
Shaw highlighted the huge risk to the startup community in a scenario where the UK has no deal with the EU or even a bad deal, but emphasised that fintech could suffer the most.
Shaw, who was representing the views of tech startups, said: “If we go over this cliff edge it will be immensely disruptive. The entrepreneurs that I meet say they will just get on with it and make the best of it but it will be a very, very disruptive process for a number of them, particularly those in the fintech sector. That is one of the most vibrant aspects of the tech community in London and many of the companies will need passporting rights.”
He went on to praise the FCA for trying to find solutions to this type of problem.
But it is not time yet for UK based fintechs to go through the pain of relocation. He said that while UK startups and early stage firms should probably be opening up a presence in Europe to ensure they have access to customers in the EU, he did not recommend moving headquarters.
There is a lot to lose for the overall UK tech sector if the final Brexit deal is bad news. Tech firms in London, many of which are fintech focused, received more venture capital funding in 2017 than all other major European cities combined, with the amount invested doubling since 2016, according to research by the mayor of London agency, London & Partners. It found that £2.45bn in funds were invested in London-based firms in 2017, compared with £1.23bn in 2016. London accounted for 80% of investment in the UK.
The European city with the second largest influx of funds was Paris, which received £565m, followed by Berlin with £456m. So you can see why the EU might drive a hard deal. Cities like Paris would like to have London’s cake and eat it and as the Japanese ambassador said this week after meeting Theresa May, if being in the UK makes Japanese firms unprofitable there is no reason to be there.