Brexit – what can we conclude for digital finance and fintech

​The British voters indicated that they want the UK to leave the EU. The UK has been an integral part of the European Union since 1970’s and it is not a simple process to leave the EU. The UK and EU must agree on the future arrangement, including trade agreements, possible common regulation and movement of people. This has impact on finance services, including digital finance and fintech.

At this point it is impossible to make any detailed analysis, when we have no information what the relationship of the EU and the UK will be in the future. We don’t even know the negotiation targets of the UK or the EU. In principle, we can say it can be anything from the models Norway and Switzerland have with the EU to the global WTO model.

UK based finance services that have been a part of EU’s internal market, including the ‘passport’ model to be able to offer services in each EU country are unlikely to continue as is. This arrangement is simply unlikely if and when the UK is not a part of the EU. Grow Advisors, a Grow VC Group company, made a brexit analysis for fintech in April and it analyzed that for fintech companies the key issues would be,

1. how to offer services in the EU,
2. get enough talented employees, if free movement is removed, and
3. especially the impact of those two previous things for fintech startups when they have less resources to handle regulation and work visas.

The end of free movement would also mean that for European entrepreneurs it is more difficult to move to London and they could prefer other places, including also the US, when it is not anymore easier to come to the UK.

Capital Markets Union has been EU’s new initiative to build a more common capital market inside EU, help offer finance services and also help European organizations to better raise capital. It has been important also for SMEs that they could raise more capital to compete globally. London City has been a strong supporter of this project and it has been led by British EU Commissioner Lord Hill. He now decided to resign and when the UK is not part of the EU, most probably it is not a part of this Capital Markets Union.

The Grow VC Group has global operations and we have always seen the UK and London as an important finance and fintech hub. We have companies and people in the UK. The most complex part of the current situation is that we have no information about the new relationship of the UK and EU, even the role of Scotland is uncertain. EU is a very important market, the world biggest common market comprising of 500 million people. We also see that digital finance and fintech have really started to emerge in the EU. That’s why we plan to invest more in the EU market and start more operations within the EU. At the same time we increase our activities in the US and Asian markets.

In the near future we will announce two new operations in Grow VC Group. We are just in the final process to choose the locations and jurisdictions for those operations. We evaluate:

1. markets,
2. regulation,
3. operating costs,
4. credibility of the location in finance services, and
5. available talented employees.

​We believe this is a process that also many other finance companies consider now for their new operations and also for existing operations in the UK. We hope the UK position, including arrangement with EU, can be clarified very soon. Business builds on stability and predictability. We hope to see that the UK and London play a part as important finance and fintech hubs also in the future.