Brexit Financial Market Regulations Means Trouble for UK-based Banks
Hundreds of financial institutions and fintech startups have used London as a window to the EU’s 27 countries and common market.
It’s no wonder that for years, companies have opened offices in London. But that window is now closing, and the UK must embark on an unknown future.
The UK’s shocking decision to leave the European Union (EU) has left its citizens fearful for what’s to come. Local news stations have been ringing the alarms for some time, sounding constant warnings of how the Brexit referendum will result in higher interest rates and an increase in currency volatility — particularly in relation to the pound. Meanwhile, this well-known financial capital must also consider the potential consequences Brexit will have on the future of the payments and fintech industries.
The relationship between big UK banks and fintech startups is likely to waiver in the coming months. For a long time, these organizations relied on a win-win partnership — UK financial institutions gained greater exposure to new technologies and business models, while fintech startups saw an increase in capital and access to the EU’s internal banking market. But now, fintech startups will be forced to look to greener pastures when identifying potential business partners.
Prior to Brexit, fintech startups enjoyed the option of “passporting” their British eMoney license from the Financial Conduct Authority (FCA) to all other EU countries — giving them essentially a seamless process for cross-border transfers. However, the Brexit decision will force such startups to apply for a license with different regulators across Europe (i.e. German BaFin and Swedish FI). This will likely force such startups to move operations from London all together because the only way they can maintain their regulatory freedom within the EU is if they set up additional offices across Europe.
Major payments processors with London-based operations centers face similar threats. For privacy and data security purposes, European law requires such processing centers to be part of the EU — meaning they may need to leave London as well.
As we continue to embark on a new and not fully understood financial reality, the coming months will be crucial for these organizations to solidify their future in the European market. With both fintech startups and their processing counterparts finding no option but to leave London, the future of the UK’s financial services market is questionable at best.