Brexit has created disruption and uncertainty for the U.Okay.’s fintech sector, however business insiders say that there’s a silver lining. The U.Okay.’s departure from the bloc leaves it free to forge its personal regulatory path in fintech and cryptocurrency.
Not solely might this spur innovation, it might assist the U.Okay. to reinvent itself as a hub for crypto and decentralized finance, or DeFi.
These feedback come shortly after the U.Okay. regulator opened a session on cryptoasset regulation, with a deal with stablecoins, which can run till March 31. The U.Okay. can be within the midst of a government-backed fintech evaluation, launched in July 2020, which can make suggestions for a way greatest Britain can nurture its fintech business following Brexit.
The U.Okay. formally left the EU at 11 p.m. London time Dec. 31, 2020. Though British Prime Minister Boris Johnson clinched a take care of the bloc Dec. 24, 2020, the flexibility of U.Okay.-based monetary companies companies to do enterprise on the continent nonetheless hangs within the stability, because the EU has but to agree on equivalence of economic regulation.
The Monetary Conduct Authority, the U.Okay. regulator, has allowed EU monetary companies firms — together with these within the funds house — to proceed to commerce within the U.Okay. below a short lived permissions regime, however this has not been reciprocated by the EU or any of its member states.
Silver linings
However CEOs within the U.Okay. crypto and DeFi house imagine that Brexit might mark a brand new starting for his or her business.
“Now that we have averted a no-deal Brexit, it sends a powerful message to the remainder of Europe that we wish to do issues our method and proceed to steer the house as a number one monetary and know-how companies hub. There’s already an enormous quantity of fintech innovation within the nation, and I hope that this can permit us to proceed to compete with the remainder of the world on this space,” mentioned Pavel Matveev, CEO of Wirex Ltd., a fintech that gives cryptocurrency wallets linked to Visa Inc. and Mastercard Inc. debit playing cards.
The U.Okay. fintech sector is value round £7 billion a yr to the financial system and employs round 60,000 individuals, in response to authorities knowledge.
London’s fintech business attracted $3.6 billion in enterprise capital between January and September 2020 throughout 169 offers, second solely to San Francisco, the place fintechs bagged $5.1 billion in funding throughout 107 offers, in response to knowledge from Dealroom.co.
International cryptocurrency market capitalization handed the $1 trillion mark for the primary time in January, in response to CoinGecko, a cryptocurrency knowledge aggregator.
Stani Kulechov, founder and CEO of London-based fintech Aave, which focuses on infrastructure for DeFi, additionally sees optimistic facets to Brexit.
“Whereas Brexit brings appreciable uncertainty to the U.Okay. monetary business, such uncertainty is nothing new for the crypto and DeFi house. Brexit may also be a possibility for the fintech group and policymakers to create additional innovation-friendly insurance policies and lead in DeFi and digital property as nicely,” he mentioned.
Sean Kiernan, founder and CEO of Greengage, a fintech offering service provider banking options to small and medium-sized companies, significantly within the crypto house, believes that the FCA may very well be extra nimble in its strategy to crypto after leaving the EU.
The EU issued its directive on Markets in Crypto-assets, or MiCA, in September 2020, which states that every one firms within the bloc issuing crypto or offering crypto-related companies — equivalent to custodian companies or buying and selling — will in the end need to be regulated, though that is nonetheless on the proposal stage and has but to undergo the EU legislative course of. Business watchers say full implementation might take someplace between two and 4 years.
For Kiernan, so much can change within the fast-moving world of crypto on that sort of timescale. Now that it’s free to make choices independently, the FCA may very well be “extra responsive” in its strategy to crypto than it could have been throughout the EU.
Entry conundrum
For Simon Briskman, associate at regulation agency Fieldfisher, Brexit might go away the U.Okay. freer to innovate and to place itself as a world fintech heart, however with the caveat that it might want to tread a positive line between attaining these goals and sustaining entry to EU markets.
He mentioned: “Brexit presents the potential for a twin-track regulatory regime permitting new entrants from exterior of Europe and U.Okay. start-ups some leeway on the heavy regulatory duty that monetary firms face.
“The FCA has been leaning this manner for years in its mandate to encourage innovation and should now be capable to act additional. Utilizing the U.Okay. as a springboard earlier than taking up the heavier regulation the EU imposes could nicely appeal to fintech and crypto funding within the U.Okay.”
The FCA has an current repute as one of many world’s extra progressive regulators by way of fintech, and its sandbox initiative — a testing program for early-stage fintechs — launched in 2016, is a mannequin that has been copied by quite a few different nations.
Jack Wilson, head of coverage and regulatory affairs at TrueLayer Ltd., a London-based agency that gives different monetary establishments with the know-how for Open Banking, mentioned there is no such thing as a getting away from the truth that Brexit makes life harder for fintechs doing enterprise on the continent.
“Brexit is a problem dealing with all U.Okay.-based companies who wish to proceed offering regulated companies into the EU,” he mentioned.
TrueLayer is looking for authorization from the Financial institution of Eire to permit it to proceed to supply companies within the EU. Till then it has partnered with German fintech Fino run GmbH to make sure continuity of service.
Different U.Okay.-based fintechs have adopted an identical strategy of establishing a base in an EU nation to proceed serving shoppers on the continent, equivalent to banking-as-a-service supplier Railsbank Know-how Ltd., which established an workplace in Lithuania in 2018.
