Is Brexit good or bad news for UK fintech?

Is Brexit good or bad news for UK fintech? Main image: matrioshka,
Written by Alessandro Hatami

Alessandro Hatami on the post-Brexit state of fintech in London, and the pros and cons when it comes to regulation, startups and investment.

I found a relaxing holiday away from Europe a great opportunity to think about the impact of the UK leaving the EU on the industry I’ve dedicated most of my career to. As a European based in London, the events leading to Brexit have left me amused and irritated in equal measure. As long-term practitioner in fintech, I am mostly worried about understanding their impact on my industry.

Historically, the emergence of London as a global financial services (and more recently fintech) hub has been due to four fundamental factors:

  • Access. Easy access to a market the size of a continent, with a shared set of rules and regulations.
  • Regulation. Engagement with forward-thinking regulators that could cover the UK and the EU.
  • Talent. The availability of skilled, flexible and motivated people.
  • Capital. The availability of money – be it angel, venture, PE or corporate – to back new ideas.

The two main tenets of the Brexit “movement” – the decoupling of UK regulation from Brussels rules, and a stop to the free movement of people within the EU – will both affect the state of fintech in the UK.

The impact of Brexit on UK fintech. Source: The Pacemakers Ltd


London is arguably the premier global financial centre. In a hugely globalised world, financial centres operate as primary access points to very large markets regulated by similar legal frameworks. New York is the access point to the US economy with 319 million people (with $16.2tn GDP), Hong Kong provides access to a Chinese market of 1.4 billion people (with $8.5tn GDP), while London before the split was the access point to the EU with 508 million people (with $17.2tn GDP).

Access to the rest of the EU is based on the acceptance of shared rules, policies and regulations, a process called passporting. Should the UK wish to pursue a separate regulatory regime, EU passporting in its current form will cease, making London the access point to a market of 64 million people with a $2.8tn GDP – still sizeable, but not nearly as large as what it is today.

Dear startups

Source: Steven Houben.

In the meantime, the EU will undoubtedly continue on its cross-Europe harmonising drive, supported by initiatives such as the Single Digital Market programme, making it even more desirable for startups, fintech and otherwise, to be located in an EU country. Paris and Berlin have already started positioning themselves as an ideal alternative to London.


Post-Brexit, businesses planning to serve EU countries will probably no longer see London as the natural choice for their first foray into Europe. English, a strong legal system and a good quality of life for expats, may no longer be enough to make London the natural choice if access to the rest of the continent is curtailed. Large corporates will begin to consider Dublin, Paris, Barcelona and Berlin more readily than before, depriving the UK from the talent pool that global players develop in the markets they settle in.

The European “right to move” has enabled foreign firms based in the UK to easily hire talented individuals from a pool of over 500 million people. As these people got hired, they improved the quality of the already outstanding UK workforce, creating more interesting jobs that in turn attract more talented people. This process has become a virtuous circle, making London one of the most dynamic workplaces in the world. Large global finance, consulting and tech firms have contributed and benefited from this talent pool. A quick look at the backgrounds of founders and key people in UK fintech startups reveals that a large number of them began their careers at large firms Goldman, City, McKinsey, PayPal and Google.

The current regulatory complexity and costs of hiring non-EU talent would be extended to EU citizens. No matter how streamlined this process will become, it will have an impact on the talent pool. This will be an issue, as qualified domestic talent will not be enough to satisfy demand (at least in the short-term). Parliament forecasts that between 2013 and 2017, the UK will need to find 745,000 workers with digital skills.


One of the reasons the digital revolution has hit financial services so late is the weight of regulation. The UK regulators are unusually progressive and keen supporters of innovation. The recent introduction of Project Innovate with its Innovation Hub, and the Regulatory Sandbox by the Financial Conduct Authority, is a great example of this mindset. Firms based in the UK benefit from being regulated by a forward-thinking regulator with oversight that stretches across the EU.

Without regulatory passporting, a UK fintech firm with EU ambitions would have to open subsidiaries or relocate to an EU country. These additional costs and complexity will inevitably lead to slower growth, a need for more capital, and eventually difficulty in attracting investment at the valuations of the pre-Brexit era.


In 2015, the UK was the clear EU leader in fintech investment. In the period between 2010 and 2015, UK fintech firms received $5.4bn investment, with the rest of Europe accounting for only $4.4bn. London is a leading location for entrepreneurs seeking venture funding. Brexit could impact this in several ways.

Firstly, dealing with multiple regulators will lead to reduced valuations. Businesses will have to choose to either be regulated in the UK and in the EU, with more costs, or focus on the UK only with reduced revenues. Either way, their costs will increase.

Secondly, if businesses have to deal with a tighter talent pool, they will either grow slower or have to pay more for staff. Again, valuations will be impacted.

Lastly, if Brexit results in fewer financial services firms being based in the UK, access to capital will inevitably be impacted, especially for early stage and angel investors. All said, as some startups will relocate to Europe, those that remain in the UK may find less competition.

What Brexit will eventually look like isn’t yet clear. Politicians are aiming to negotiate a deal for the UK that will retain all or most of the benefits associated with EU membership, while giving up many of the responsibilities. The extent of their success in achieving this will determine the effect of Brexit on the UK fintech industry.

All things considered, it would seem unlikely that the role of London as Europe’s financial and tech hub will not be diminished, especially as several other cities are already positioning themselves to take on the role. At this stage, all we can do is cross our fingers and hope for the best.

READ NEXT: Wealth markets after Brexit: the UK stronger than Europe

– This article is reproduced with kind permission. Some minor changes have been made to reflect BankNXT style considerations. Read more here. Main image: matrioshka,

About the author

Alessandro Hatami

Alessandro Hatami is a corporate serial entrepreneur with a track record of delivering growth through digital at some of the world's most respected companies in the payments, banking and financial services industries.

Leave a Comment