What banks can learn from fintech CEOs’ reaction to Brexit
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What banks can learn from fintech CEOs’ reaction to Brexit

Start-ups fear a funding stop and loss of access to the single market, but are already making back-up plans that could point the way for their peers in the more established parts of UK finance.

Canary Wharf clouds-R-600

The grey clouds couldn't be ignored at Level39 in Canary Wharf this week

Two weeks after UK voters chose to take the country out of the EU, members of London’s fintech community gathered at Level39 in Canary Wharf to work out their response.

Their chief short-term worry is a sudden stop in investment and liquidity from the financial backers that had amply supported tech-enabled start-ups in financial services until a slowdown in the run-up to the vote.

Lawrence Wintermeyer, chairman of Innovate Finance

Lawrence Wintermeyer,
Innovate Finance

Their medium-term worries – continued access to the European single market and ability to attract highly mobile top-class talent – are the same as for the bigger banks in London. The speedy response of the fintech firms might even point the way for the incumbents.

London is by far the biggest hub in Europe for fintech start-ups, having attracted over $10 billion of venture capital between 2010 and 2015, putting it in a global bracket with Silicon Valley and New York.

As Europe’s established financial capital, home to 250 banks and financial institutions, London had the critical mass to grow its fintech sector rapidly after the global financial crisis threw many experienced financiers out of the big banks.

The UK government has embraced fintech. The City’s lead regulator, the Financial Conduct Authority (FCA), sees it as part of its mission to encourage competition to the incumbent banks by helping fintech firms through the approval process.

It has just closed the first round of invitations into a ‘regulatory sandbox’: a safe space for innovators to experiment with as yet unauthorized business models under the gaze of the regulator.

In the sandbox, the FCA hopes to learn how its own regulation might need to adapt to emerging technology while start-ups can reduce time to market by avoiding building something that regulators eventually knock back.

This regulatory support has been a key differentiator for London that leaves even rival hubs in the US green with envy.

However, many of those firms were set up in London with a view to offering their services into the European single market and disappointment at the referendum result hung heavily in the air.


Mike Laven,
Currency Cloud

Asked for their one-word response to the Brexit vote, a panel of fintech CEOs responded variously with “opportunity”, “uncertainty”, “sadness”, “democracy”, while Mike Laven, CEO of Currency Cloud, a secure cross-border payments engine for SMEs, needed two words that drew most murmurs of agreement from the crowd: “It sucks.”

Survey results suggest support for Remain ran at 80% among those employed in fintech in London.

Jeff Lynn, co-founder and CEO of equity crowdfunding platform Seedrs, spoke for many when he bemoaned the sudden diversion of all his efforts into re-assuring staff, customers and investors.

“It feels like I had been playing offence,” he says. “But since the referendum, I’ve been playing defence.”


Yet entrepreneurs are practical people. While the British government still has no plan for negotiating a new trading deal with Europe, within 10 working days Lawrence Wintermeyer, chief executive of Innovate Finance – a convening body for fintech firms in the UK – had already surveyed members, identified their key concerns and set up action plans.

Jeff-Lynn-Seedrs -160x186

Jeff Lynn, Seedrs

Deloitte is offering corporate finance advice to young firms that might need to restructure terms of stalled funding rounds or face problems with liquidity. Ernst & Young is developing a lobbying effort around securing of tier-1 visas for workers with the essential skills and tier-2 visas for entrepreneurs seeking to build fintech businesses. Hogan Lovells is offering advice around passporting and regulatory compliance.

In each category there is mixed news. Gerard Grech, chief executive of Tech City UK, suggests the first funding term sheets closed after the referendum result, for three small deals, are encouraging.

“We are starting from a strong base,” he says. “We are one of the few countries with a dedicated visa scheme for fintech people and smart talent will always look at the density of the ecosystem. Yes, there is uncertainty now. But that’s only going to get better.”

John Egan, senior director at Anthemis – a venture investment and advisory group specializing in fintech – says that while local, sterling-based venture capitalists might pause now, “we may see a lot of new funds from the US and Europe reach across and fill the gap. We have raised a lot of money in the US and may actually become more aggressive in the UK. And we are not the only investors talking like that.”

He adds: “We are seeing the beginning of a flood of corporate money into fintech. Capital is not going to be the problem that London will face.”

That remains to be seen. This flood of corporate money will be needed to compensate for loss of capital from the European Investment Fund, part of the EIB group, which fosters innovation and entrepreneurship in Europe and which has channelled a large proportion of its investments in fintech into London.


Damian Kimmelman,

The more established fintech firms were groping for an upside if venture capital sits out uncertainty over passporting and access to the single market for the next two to three years.

Damian Kimmelman, co-founder and CEO of DueDil, says: “The market [for venture capital investment in fintech] has been frothy and investors have a lot of jitters. But actually, as a funded growth company, I would like to focus now on unit economics.

“What I would be most worried about is an overfunded new competitor coming into this space.”

While fintech companies founded four or five years ago might now relish the funding ladder being pulled away from potential rivals, that is very cold comfort for start-ups and early-stage companies looking for series B and C funding rounds to build out newly proven business concepts.


The drivers of digital re-invention of finance have not been derailed by the UK’s referendum vote. Fintech will not be halted. Governments, policymakers and central banks are only just waking up to the idea of digital identity and digital financial technology as an instrument of control: a means, for example, of reducing tax fraud.

However, it was left to Wintermeyer to stress the uncomfortable truth for those betting on London maintaining the enviable leadership position built up in the past six or so years: “Sentiment drives a lot of investment.”

And, sentiment-wise, London fintech doesn’t look anywhere near as attractive as it did before the vote.

The most important question is whether the UK government that eventually emerges after the Conservative party leadership election will follow the advice of Mark Boleat, policy chairman of the City of London Corporation.

He declared after the result: “The general view of the City is that the government should push for the UK to retain our access to the single market. Any other option will fail to provide proper arrangements for financial services and risks damaging this vital industry.”

Entrepreneurs tend to be smart at thinking around obstacles. Expect some who portrayed their companies as technology-driven financial firms when hot money was flowing into fintech now to try to rebrand as non-financial services providers.


Rachel Kent,
Hogan Lovells

Rachel Kent, lead partner in the financial institutions group at Hogan Lovells, has been advising big banks as well as fintech firms on their approach.

“The first thing to ask yourselves is: ‘Am I actually undertaking regulated activity at all or will I ever?’” she says. “If your business plan is to scale for passporting, remember that there is the third-country regime designed for non EU countries where the law is equivalent to EU law, which the UK’s will be to start with.

“And even if negotiations don’t secure passporting or third-country access, there is still no need to panic. It’s not that bad to get regulated in Berlin, for example, and passported from there.”

Kent adds: “I certainly don’t advocate a brass-plate approach. You would need a board of directors and some senior management based there, but a firm could then still outsource much of its activity back to the UK.”

Lynn at Seedrs echoes Wintermeyer’s observation on sentiment as a big driver of investment. Regulation is almost as much about appearances as it is about compliance with the law.

“We are in the process of applying for a regulatory passport not because we actually need it for what we do, but because we may benefit from it optically,” he says. “Dual regulation actually doesn’t look that hard to achieve. And by obtaining it, we might then just look better to European regulators.”

Will obtaining a regulatory passport be enough to secure customers in Europe if their perception is that London-based firms are not really European at all?



John Egan, Anthemis

While many in the town hall meeting at Level39 were trying to encourage one another that London fintech will thrive even after Brexit, thoughts were already turning to the worst possible outcome, a UK decision not to seek European Economic Area status to preserve single-market access in preference instead for controlling immigration.

Chris Woolard, director of strategy and competition at the FCA, pointed out that even before the Brexit vote, the UK regulator had been seeking to help fintech companies that want to develop beyond the UK and European markets.

“We have been seeking international agreements with different jurisdictions that also have big fintech ecosystems and like-minded regulators,” he says.

“We signed the first with Australia 12 weeks ago and have also signed with Singapore. We are looking at ways to enable UK-based companies to enter these markets as known entities to the regulators.”

Woolard hints at more deals to come, with off-the-record talk among his audience centring on Mumbai.

Innovate Finance has already established a transatlantic policy working group with US fintech firms and attended a White House fintech summit last month with the US Department of Commerce, US Treasury Department, US Small Business Administration, USAid and the Council of Economic Advisers.

“If I’m cut off from the EU, I’ll pivot to Asia and the US,” declares Laven at Currency Cloud. “It’s a big world. There’s lots to do. The rush to a digital future continues unabated.”


Gerard Grech,
Tech City UK

In the room, entrepreneurs privately questioned how effective an aggressive European response to Brexit might actually be.

The CEO of one capital markets platform tells Euromoney: “If you look at the noises since the referendum from France say, around euro clearing, I wonder whether they actually realize how fundamentally different clearing will look five or 10 years from now with blockchain.

“Are they missing something about the relative importance of physical location in a world of distributed technology?”

Entrepreneurs are already thinking in practical terms about attracting the best people to London, thinking ahead of the forthcoming negotiations on access to the single market and free movement of labour.

Lynn says: “I’d like to know if the new immigration rules will be job dependent, or whether it will be a points system determined by skill set.”

His point is that people with the skills to build fintech businesses will always be in demand and immigration rules will be set to attract them.

However, in an uncertain market for funding, the prospects for any particular fintech start-up surviving and any specific job remaining are now much less clear.

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