By Michael Soetan, Apprentice in Global Occupier Services Transaction Management
With Brexit fast approaching and the FinTech sector growing, will we see an exodus of FinTech firms to the EU?
73% of FinTech firms in London list Brexit as their top concern. With Brexit approaching some believe most firms will simply move their operations to continental Europe for a variety of reasons. But is this the case?
The $9 billion FinTech industry in the UK provides 60,000 jobs to the economy and benefits from the UK’s supportive regulatory system. Under UK regulation “you can do anything unless it is regulated” which facilitates a growing sector. This is opposed to, for example, Poland where “you can do only what is regulated.” So, with a facilitating regulatory regime it is unlikely that many firms will choose to ditch the sandbox model adopted in Britain for something less supportive in the EU.
Since it is unlikely that British firms will simply leave the UK market after Brexit it seems increasingly likely that more firms will open new offices in the EU to keep benefits such as passporting rights which British firms may lose.
Up to 80% of the EU’s FinTech sector is based in Britain and with many of them having some European clients the disadvantages of relocating completely to the EU outweigh the advantages. However, it all boils down to the new trading relationship between the UK and the EU. If the trading agreement is favorable for both Britain and the EU, the existing situation will likely continue. Though if non-favourable terms are reached to the detriment of the UK, many British FinTech firms will open a new office or relocate to Continental Europe.
Britain is Europe’s biggest market for loans to consumers (nearly twice the size of the German market). Therefore the EU and the UK will need to cooperate post-Brexit as the EU will need Britain’s loan market to help support its FinTech sector. On the other hand, up to 88% of London businesses employ workers from countries in the EU and when/if the free movement of workers ends, the talent pool for FinTechs will dwindle.
It appears that many FinTech firms will have the incentive to open an EU office if one is not already open. However, there will not be a mass exodus to the EU after Brexit as both sides are interdependent.
Michael Soetan is an apprentice in Global Occupier Services, and is based in London. He works on identifying topical issues for occupiers in conjunction with a newly formed cross-industry real estate networking group I-Suite.
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