Before the UK’s EU referendum, only two things were clear: no-one knew what a ‘leave’ vote would mean for the country’s exit from the EU and, initially, nothing would change. Both things have come to pass and, now the dust has settled, we find ourselves in the middle of Brexit chaos.
According to Article 50 of the Treaty on European Union, the withdrawal of a country from the EU must be negotiated within two years of its – in Britain’s case, as yet unannounced – official application to leave. To clarify: the EU and the UK have two years to define the terms of their future relationship, although it seems unlikely that anyone in Brussels or London seriously believes that a withdrawal on this scale can be pulled off in two years.
It is, however, precisely the results of these negotiations that will determine the actual effects of the Brexit, particularly on banks, fintech companies, cross-border e-commerce and the payment industry.
Very few Britons in the financial industry were genuinely in favour of the UK’s withdrawal from the EU – or, at least, very few would admit it publicly. Free access to the EU is too important. To pour oil on troubled waters, at the end of July British foreign secretary Boris Johnson was forced to announce that financial services providers would, of course, be able to continue their business within the EU.
After Brexit, therefore, nothing would change for the financial industry. The minister practically guaranteed financial experts EU passporting rights (the free movement of services within the EU) as a fait accompli in the negotiations. No one really wants to rely on such statements – Mr Johnson was probably just looking to gain some breathing space.
In London, after all, there are around 700,000 financial sector jobs, and not only in traditional banks. Although such banks are often cited in discussions about Brexit consequences, there are other players on London’s considerable financial stage.
While many non-European banks have their main headquarters in London and benefit from EU access, founding a new branch in the EU should be no problem for such industry giants. Each year, the UK exports around €24bn (£20.8bn) worth of financial services to other EU countries, and, in addition to banks, the financial industry comprises a large number of active fintech companies, consulting firms and payment providers.
Three-quarters of emergent European e-money providers are headquartered in London and licensed as British providers of financial services. One of the biggest advantages of European e-money services is that they can easily be provided across international borders. If British financial licences become invalid within the EU, e-money providers will find themselves in a similar situation to banks.
Their only option will be to obtain a new licence in the EU, a process that involves additional regulatory requirements, duplicating infrastructure, and – most importantly – additional cost. This could put a dampener on the development of e-money in Europe. Despite this, e-money promises to be a key future issue for the financial industry as innovative companies seek out other options, including options outside the UK.