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The UK could lose up to 30,000 jobs within the fintech sector in the event of a ‘hard’ Brexit, the The Payments Association has warned. The concerns centre on ‘passporting’ rights, which allow companies to sell financial services to the rest of the EU, and are tied to being a member of the single market.
The UK is likely to lose single market membership if it refuses to continue permitting freedom of movement from the EU, a situation widely dubbed ‘hard Brexit’.
“It’s looking likely to be a hard Brexit,” Peter Howitt, founder of Ramparts law firm and co-author of the Payments Association’s latest report, said at the launch this week.
There are 5,500 registered UK companies with 336,421 ‘passports’ at the moment, according to the Financial Conduct Authority. HM Treasury estimates the market employs 60,000 people and is worth £6 billion to the UK economy. “We estimate 10 to 50 percent of those jobs could be lost, so up to 30,000”, Howitt warned.
“We’re not all going to move to Frankfurt, but we have to do something,” he said. “It [hard Brexit] will require us to look somewhere else.”
Although the authors said they had not seen any UK fintech firms apply to get authorised for a ‘passport’ elsewhere yet, many are seriously considering it. “We’re not hearing many saying they’ll leave fully,” Howitt said.
GoCardless, a UK payments firm with 100 employees, would consider opening a satellite office in another EU member state if the right to passport into Europe from the UK is removed, its legal lead Ahmed Badr told Techworld.
“It’s not difficult for UK companies to set up an EU subsidiary to conquer the passporting challenge, and still be able to benefit from all the advantages of operating from a London base,” he added.
For now, the Payments Association advised fintech companies to follow one of three options: wait and see; hedge their bets and investigate alternative countries; or ignore the EU and focus on the UK and non-EU markets.
The six countries most likely to benefit from a UK fintech exodus are Ireland, Malta, Denmark, Cyprus, Sweden and Luxembourg, according to Howitt and co-author David Parker, CEO of Polymath Consulting.
Neither France nor Germany were recommended as potential relocation destinations for fintech firms.
The decision shouldn’t be purely based on tax and the cost of business. Companies also need to consider the political environment and whether they can form a good relationship with the regulator, the report recommended.
Howitt emphasised it is still unclear what the outcome of UK/EU negotiations will be.
“Many hope for a middle ground between the EU political system and the common market,” he said. “We’re still hopeful the UK won’t lose common market rights, despite the dynamics in the press and political posturing.”
This article was written by Charlotte Jee