The UK is one of the top leaders of the world’s financial services industry. But, with Brexit looming ahead, how will it impact the nation? Find out Mohsin Jameel’s views on how Brexit will impact the UK’s Fintech industry and how financial services can cope with weathering the blow.
29th March – the official Brexit deadline is just a couple of weeks away. The EU referendum has caused uncertainty in London’s financial district is the understatement of the century. Let Mohsin Jameel share his views on how Brexit will impact the UK’s financial services sector.
The Role of Financial Services in the Economy of the UK
The UK is the fifth largest economy in the world, and over 2 million people are employed in financial and related services. Out of which, over two-thirds are employed outside London. The financial services sector is UK’s largest tax paying sector and contributed a massive £66billion to the state’s coffers in 2015-16. It’s also the biggest exporter in the UK, with trade worth over £67billion for the year 2014. In 2014, exports of financial services to the European Union generated around £18.5billion trade surplus in the UK.
These figures illustrate the crucial role Fintech and other financial services play in the economy of the country.
Deal or No Deal – The Question of the Hour
With just a few weeks left for Brexit, UK still hasn’t worked out a deal with the EU. It looks likely that the UK may be forced to go through a Brexit without any deal to protect her interests or the Brexit deadline may be delayed.
How is Brexit likely to Impact Financial Services in the UK?
After nearly four decades of harmonization with the EU, the UK and the rest of the EU are inextricably linked together. The 27 other EU members have significantly larger and dominant industries and markets that outsize and outdo the UK. However, the UK has one silver bullet in its hand – it’s the default capital of Europe’s financial services. This includes banks, venture capitalists, insurers, asset managers, FinTech firms and more.
When Britain leaves the EU, the European Union runs the risk of losing the financial hub of London. Cities like Frankfurt, Berlin, and Paris are looking to emerge as the financial capital of Europe, but that’s a difficult proposition – one that may take decades to happen.
As of now, all members of the EEA (European Economic Area) can access each other’s markets without the need for any European regulators. This is known as “passporting rights.” UK is likely to lose these crucial rights if it leaves the EU, without a favorable deal.
Once Brexit kicks in (after the transition period), it’s sure that trade relations between the UK and the EU will never be the same. With Brexit, it will be extremely difficult for the UK to expand its market not just in the EU, but also in the other 60 non-EU countries that have trade deals with the EU.
However, a few financial experts (like Mohsin Jameel) believe that this is an opportunity in disguise for the UK. Britain will be able to strike deals with the rest of the world on its own terms, without being encumbered by the regulations of the EU. From a regulatory standpoint, the UK’s financial services are likely to exceed the standards set by the EU.
Until the final outcome of Brexit is known, UK’s financial services face several risks like – threat of being shut away from the rest of Europe and the rest of the world, paying higher prices to keep business deals going on as usual. If a no-deal Brexit happens, it is likely to deal a harsh blow to the lucrative export services of financial services by the UK to the EU.
FinTech Industry after Brexit – Predictions
As per Mohsin Jameel for industries like the FinTech the freedom of movement of labour, which was guaranteed by the membership to the single EU market is crucial. This freedom of movement of labour helps to bridge the technology skills gap prevalent in the UK. If the UK is unable to work out a favorable Brexit deal, it could cause disastrous effects on the FinTech industry and the financial services space of the UK.
The biggest essentials for FinTech companies to thrive is relying on fast-developing technologies and being able to procure the right talent across borders. Brexit puts the UK at an unfavorable position for these two factors.
Right now, the majority of companies in FinTech and other financial services are pausing operations until the future relationship between the EU and UK become clearer. The bigger unaddressed question is, “Whether London will continue to remain as the FinTech capital of Europe, or will it lose the coveted title to other cities like Berlin, Paris and even Dubai that have thriving FinTech industries?”
But, that doesn’t mean its all gloom for London and the rest of the UK. With established infrastructure, a multi-cultural talent pool, access to large investments, London will continue to remain at the helm of the European and global financial industry for a few years.
A survey by Early Metrics, an international rating agency for startups and innovative SMEs found out that the UK is still viewed favorably by Europe’s major FinTech firms. It’s true that the UK is currently facing one of the most serious challenges the country has faced since World War II. While it’s too early to predict definitive conclusions most FinTech firms in the UK have started preparations to deal with the Brexit implications long back.
The Bottom Line
It’s true that no one can state with the certainty of the long-term implications of Brexit. However, despite the long-term uncertainty and short-term confusions, competitions from other growing powers in Europe, London still retains its coveted title as an attractive hub for talent and is still the preferred headquarters for financial institutions.
What do you think will happen? Will the UK be able to hold it’s head tall and will it be business as usual at London’s financial corridor? Share your thoughts with Mohsin Jameel in the comments below.