That’s a question posed by FinTech risk experts Aon recently.
In a blog, the firm explores whether Brexit will impact London FinTechs and threaten the capital’s reputation as a hub for financial innovators.
We look at the reasons for London’s pre-eminence in financial innovation – and examine the implications of our departure from the EU.
What are FinTechs?
The word has come to be used for any innovative financial solution – whether in terms of operations or delivery.
Fintechs are known for being customer-driven; customers are increasingly driving disruption across finance and other sectors. And while innovative approaches were initially championed by new businesses, today, established banks are getting in on the action. Read more about why you don’t have to be a start-up to be a disruptor.
Why is London a FinTech hub?
One of the big success stories of FinTechs is the role London plays. Since the advent of the FinTech sector, the UK’s capital has been at the forefront.
Why? The Aon blog points to a number of reasons:
- The City of London has a long-standing financial services industry, as well as an established legal infrastructure, excellent talent pool, diverse culture and access to investment
- The financial district is located alongside the technology sector, making it geographically ideal
- Its electronic trading infrastructure processes over half of the world’s USD 5.3 trillion currency market
- Its location – in a time zone between the US and Asia – makes it well-placed to work with global customers
These factors have seen London grow exponentially as a home for financial innovation. The blog reports that in 2017, over USD 800 million was invested in London-based start-ups, doubling the previous year’s pot.
The regulatory climate is also advantageous to FinTechs; the Financial Conduct Authority has long-championed innovation via its Innovate programme, Regulatory Sandbox and Global Financial Innovation Network.
The blog’s author believes that this combination of circumstances ‘will likely see it remain at the forefront of the European and global FinTech industry, in the short term at least’.
What of the future, post-Brexit?
After the UK leaves the EU, though, the picture isn’t quite so clear.
Brexit is – in Aon’s words – ‘the most serious challenge to [London’s] status as the FinTech hub of Europe’.
And while it’s too early to draw ‘definitive conclusions’ on Brexit’s impact, many FinTechs are already assessing its implications.
Firms’ ability to raise capital, and to attract and retain the talent they need, are particularly in the spotlight.
If financial institutions move their headquarters or significant operations from London, the geographic advantage FinTechs in and around the City currently enjoy will reduce.
Because FinTechs ‘tend to rely on fast developing technologies to maintain competitor advantage [they] need to move quickly and access talent across borders’. One of the current strengths of the London FinTech industry is its diverse workforce.
This too could prove problematic, depending on the nature and implications of our departure. The blog believes that:
‘Uncertainty over passporting and access to talent could lead FinTechs that would have started up in the UK to choose locations such as Dublin or Brussels instead. It has been reported that over 100 FinTech companies are in talks to move their headquarters to Berlin. Tallinn, Lisbon and Sofia are also being touted as thriving economies for start-ups.’
Embracing financial innovation? Reduce your risks
Whatever the future of London as a FinTech hub, UK financial services firms are likely to continue embracing innovation. Customers and regulators are increasingly receptive to new approaches, and the drive for more efficient, customer-centric and faster solutions seems unlikely to abate.
If you’re a regulated business, you need to stay on top of regulatory requirements. Marrying innovation with compliance is vital. And any new solutions need to be approached with caution, as examined in Could FinTech be the cause of the next financial crisis?
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