Brexit And Fintech: What Will Happen?

Brexit still remains a hot topic in the media. The consequences of the British referendum will have—well, they already do—a profound impact on the world’s economy. Fintech companies are no exception to this and they will face new challenges when the UK is definitely out of the EU.

What should fintech players expect in the new reality with Britain completely on its own? Do they need to prepare for a dramatic change or just a minor tweak in their business routine?

It’s hard to precisely point out every aspect of Brexit effect on the industry, especially when it’s not clear how the legal path to leaving the EU will look like and how long it will take for the UK to separate from the rest of the continent, as it was described by experts, but we can find some clear examples of obstacles or problems that can arise when Britain sets on its own.

Regulations

The most obvious difference for the fintech companies will be the one related to law. With the UK outside of the EU, the Payment Service Directive (PSD) is no longer binding for financial businesses in Britain. Therefore, all new regulations of the revised PSD2 that will be effective starting from January 2018, will become obsolete for banks and third parties operating in the UK.

The problem is, the British are already working with their EU counterparts on the universal API and security measures necessary for the communication between banks and third party service providers. What will happen to these solutions? Will they be used by the financial companies in the UK or be abandoned in favor of Britain’s own system? How third parties from the UK will be recognized by the EU regulators under the PSD2 directive (all third party service providers in the EU will be registered and monitored by respective national regulators)? These are some vital questions to be answered.

Next to this, quite a few financial and fintech companies are regulated by the Financial Conduct Authority. Even though this license entails higher expenses than other European financial regulations, there are a few reasons for choosing UK regulated. A larger guarantee for the client funds and better reputation are amongst the most common ones. However, would EU passporting work after Brexit? This is something to find out.

Transactions

All transactions made between UK and EU organizations will no longer be treated as “internal”, and supposedly will have more limitations than today. Combined with problems resulting from different regulations in Britain and the EU mentioned above, it can lead to real troubles for fintech companies.

Those from the UK probably will have to open their branches on the continent, and the ones from the EU will need to start offices in Britain to avoid legal and fiscal (taxes, customs) complications.

Resources

The free flow of goods, services and workforce within EU countries is one of the most prominent features of united Europe. Brexit means that UK companies, which benefited from cheaper employees coming from all over Europe, will have some hard times getting these people aboard again. And, of course, it also applies to fintech businesses relying on workforce—especially developers—from the continent.

It’s not just a matter of stricter law on immigration and employment of foreigners that can be passed in Britain after leaving the EU. Coders can work remotely from their homelands, but it will surely be more difficult to employ people when the common European market is closed for the Brits.

Summing it all up

Surely, it’s not clear yet how Britain is going to leave the EU. There are at least two years of negotiations on terms and conditions of Brexit. The UK can be outside of the European Union, but remain many of its member state benefits. Or, when things go south and the talks are fruitless, Britain can be totally separated from the continent.

Whatever the future brings, fintech companies should be aware that there will be changes and the sooner they start to adapt to the new reality, the more chances they have to survive Brexit or even benefit from it.