Financier Worldwide recently interviewed me about the potential effects Brexit will have on the UK’s fintech industry. You can read all of Richard Summerfield’s great article here.
This story made me think. What about the effect Brexit will have on fintech the UK’s closest neighbour, the Republic of Ireland? With the two countries having so many things in common, will Brexit mean boom or bust for fintechs looking to do business or through Ireland?
Impact of Brexit
As the UK is the Republic of Ireland’s major trading partner, the majority of the business community in Ireland who I speak to tell me they would prefer the UK to remain in the EU single market. However, I have always maintained that Brexit presents opportunities for Ireland to replace the UK as the ‘gateway’ between the U.S. and Europe.
As it will be the only native English speaking country in the Eurozone (apart from Malta), Ireland can facilitate regulated fintechs continuing to ‘passport’ their services through the EU from a base in Ireland, while offering businesses familiar culture, laws and regulations. Ireland can also provide financial firms with a MiFID passport to allow them to serve EU27 clients from Ireland, just as they currently do from London.
Brexit exodus to Ireland?
One of the attractions of the EU single market is the harmonisation of a number of laws and regulations. In other words, EU-wide rules provide for common standards for business doing business across the single market.
For young entrepreneurs deciding where to base their fintech business this provides two main benefits. First, the same rules will apply to the business if it operates in different Member States. Second, it reduces the regulatory and compliance burden.
If the UK withdraws from the single market and the UK’s laws and regulations start to diverge from the EU, this may make the UK a less attractive place for young entrepreneurs to do business. London became Europe’s fintech hub because it of its strong financial services centre and because of the ease of doing business through Europe due to harmonisation. If the second factor is taken away then the UK’s fintech industry may suffer and both entrepreneurs and established companies may look to Ireland.
Importance of the final Brexit deal
My fintech clients tell me that one of their key Brexit concerns is the uncertainty of what the final deal will look like. There is a chance the UK may not secure a suitable post-Brexit deal on the EU single market. If this happens, one of the biggest challenges will be the potential restriction on the free movement of goods, capital, services and people.
Until it is clear whether there will be a ‘soft’ Brexit or a ‘hard’ Brexit it will be hard to tell the ultimate effect of Brexit on UK and Irish fintechs. Many businesses are adopting a ‘wait and see’ approach. While this is happening, the fluctuating value of the pound against the euro is causing foreign exchange worries.
A special Brexit sector deal for fintech
Reports in the UK indicate that some in the industry are calling for a special deal to be granted to the fintech sector. Such a deal would include harmonising regulations and standards, supporting innovation, and ring-fencing funding for the sector. It is not clear how this would work in practice. Ireland is also seeking a sector deals, which may narrow any competitive advantage a UK sector deals provides. Time will tell how successful these schemes are.
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