Considered the FinTech capital of Europe in recent times London has been the destination of choice for many global and European FinTech companies. This was largely due to London’s status as a global finance hub, its access to a wide pool of EU talent, and uniform EU regulations which allow UK companies to move data, products, services and people seamlessly throughout all member states. Following the Brexit decision much of this could change.
Financial Technology, colloquially known as “FinTech” encompasses all businesses within the finance and technology sector who aim to disrupt mainstream banking, payments and finance by offering innovative alternatives. FinTech can range from big data analytics, accounting software and payment models to mobile payments, alternative funding mechanisms, asset management, foreign exchange and peer-to-peer lending. FinTech often presents a challenge for regulators trying to keep up with continuous innovation in the sector. Up to this point the UK has been a leader in the early adoption of sensible FinTech regulations, however Brexit adds a new level of regulatory uncertainty for FinTech companies based in the UK.
The potential loss of passporting rights across Europe is a primary Brexit concern for many FinTech companies. The fate of passporting rights for UK companies will depend on whether Britain retains full access to the single market in its negotiations with the EU. Passporting rights apply within the EEA and are highly important to regulated FinTech companies offering services in more than one EEA member state. They allow a company which is regulated in one EEA state to operate in all other EEA states by exercising its right of establishment or simply providing services on a cross border basis. For any UK company which wants to extend its reach across Europe the loss of passporting rights will add substantial costs and complications to those expansion plans. Without passporting FinTech companies in the UK will likely need to set up a subsidiary in an EEA member state and apply for a separate licence to operate under the regulations of that state. Special arrangements regarding passporting do exist with Switzerland and Gibraltar, but the EU will not be in a hurry to negotiate a separate passporting arrangement with the UK if the UK leaves the Single Market.
Data protection is a second Brexit concern for FinTech companies in the UK. Following Brexit, UK companies could find themselves on the wrong side of the fence under EU data transfer rules. The UK will have to choose between continuing to apply EU data protection regulations or setting up its own data protection regime. If the UK chooses the second option, then UK companies who need to transfer data back and forth with branches and partners inside the EEA will face the same challenges as companies in other non-EEA countries, for example the US. The UK could negotiate an agreement similar to the EU’s new Privacy Shield arrangement with the US, but even that arrangement may not survive in the courts. Larger tech companies may already have processes in place to deal with the legal headaches of transferring data outside the EEA, but for many London FinTech companies it could be simpler to pack up and relocate to an EU city.
FinTech Capital of Europe
FinTech brought a new dimension to London’s financial sector. In 2015, 24 of the FinTech50 came from London and more than half of all European venture capital investments in FinTech ($539 million) was invested in London companies. Silicon Roundabout, a technology cluster which grew up around East London’s Old Street roundabout following the recession in 2009, is now the largest tech startup cluster in the world after Silicon Valley and Manhattan. Techstars, a top US startup accelerator operates its mentoring program in London. Government initiatives like Level 39 in Canary Wharf, Europe’s largest accelerator space for companies in a range of spaces including FinTech, has also encouraged significant growth. As Brexit and its effects loom, the race is on for EU cities hoping to become the new FinTech capital of Europe.
While many cities will be vying to become the new alternative to London, Dublin already has a thriving FinTech sector. A number of initiatives are in place to support entrepreneurs including the FinTech Innovation Lab and a new focus on FinTech in the IFSC. Dublin also has a number of attractive offerings for companies wanting to operate across the EU including an English-speaking population, low corporation tax and a large educated workforce. A number of successful FinTech companies have started or located in Dublin such as Pay with Fire (Fire Financial Services), Waratek, Fenergo, Linked Finance, Grid Finance, Currency Fair, Ding and Transfermate. With the right combination of government and private sector efforts, Dublin could become the new city of choice for FinTech in the EU.
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