Brexit And The Foreign Exchange Industry – What Happens Next?

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Brexit sparked the beginning of an era of confusion and uncertainty, the effects of which reached far wider than industries in the UK.

You have probably heard that Brexit will signal the end of the booming UK FinTech scene, and London as a global financial hub. The UK has been a hub for financial technology firms spanning from online banking, e-landing, insurance, the application of blockchain technology to capital markets and foreign exchange.

Financial Bonds Weakening

WThe main concern for financial business was the loss of financial passporting – the instrument that enables startups to operate with great ease across the 28 nations in the European Union; for larger financial organisations, this could well be the case – some have expressed their intentions of moving their EU quarters elsewhere. It’s been reported that officials expect passporting to be one of the last elements that gets sorted in the negotiations; it is though that the EU will hold onto it as a chip to bargain with – as they know how crucial it is to the ongoing success of the UK FinTech scene.

With regards to foreign exchange and money transfer – banking passporting is critical. Money transfer corridors rely on bank accounts held in multiple countries; it’s likely that increased compliance and stringent regulations will mean that firms could lose their licences and bank accounts – threatening their ability to operate.

Other FinTech startups are reluctant to raise the white flag just yet; it will take two years to feel the true impact of the referendum. And although options are being explored, the majority of individuals within the sector aren’t looking to jump ship just yet. The UK, and London specifically, has centuries of financial history, including legal and trading infrastructure – these are not entities that can be removed overnight.

Recruiting & Retaining Talent To Become A Challenge

London is considered to be the world’s FinTech capital, generating high volumes of software, tools, and apps for bankers and traders worldwide. The sector is currently worth £7 billion to the UK economy and employs 60,000 people – although the loss of talent is causing a ripple of trepidation throughout the FinTech sector. There is great, and well-founded, fear that leaving the EU is going to affect FinTech firms from being able to recruit and retain talent, there is currently a shortage of homegrown tech talent in the sector, and Brexit could certainly increase the deficit.

With regards to remittance and the money transfer market specifically– the impact of Brexit could run far deeper. World Bank reported that in 2015, that UK remittance from migrant workers totals £18 billion, and the UK is the fourth largest source of remittance in the world.

Brexit impacts cross-border money transfer is a number of ways; fewer migrants living and working in the UK, ultimately leads to less money being sent home, volatile exchange rates and sterling shrinking against both the Dollar and the Euro also means that the recipients of the remittance, are receiving less money. It’s not just the revenue for the remittance firms that needs to be considered here – of the 25 top countries that receive remittance; the figures account for 10% of that country’s GDP. The UK provides high paying wages, should migrants choose to relocate elsewhere as a result of Brexit, and wages reduce – this could have devastating effects on the global economy.

Free Data?

Another looming aspect of Brexit to affect the UK FinTech scene is the anticipation of changes to data regulations. Data is inarguably the lifeblood of all organisations within the technology sector. EU laws govern the way in which data is used in the UK, with further GDPR legislation coming into force in March 2018.

Of course, the data regulation should stay the same after the UK exits the European Union; an adequacy decision could ensure that personal data could be seamlessly transferred between the UK and EU member states. Switzerland has exhibited this; the country implemented data protection policies that mimic those of the EU, allowing data to flow easily. We cannot, however, rule out that Britain will draft new laws surrounding data, its use and applications – meaning that technology startups will be required to comply with multiple sets of data legislation, a costly and time-draining burden.

The same increased financial worry could apply to the protection of intellectual property. Currently, an EU register holds EU protected trademarks, designs and patents of all EU member states, however, upon leaving – businesses will be required to register twice. This has the potential to be devastating for startups and young businesses with limited capital – there is also a question mark over whether European investors will withdraw from investing in UK venture capital firms.

The UK currently hold a significant advantage when it comes to FinTech, and while it’s unlikely that we will see a definitive end to the uncertainty anytime soon, we know that the Government is keen to continue to strengthen the sector, seizing all opportunities to maintain its competitive edge.



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