BREXIT: Speedy action now needed to retain UK's fintech momentum, says expert

This is part of Out-Law's series of news and insights from Pinsent Masons experts on the impact of the UK's EU referendum. Watch our video on the issues facing businesses and sign up to receive our 'What next?' checklist.

Financial services and technology law specialist Yvonne Dunn of Pinsent Masons, the law firm behind Out-Law.com, said a period of lingering uncertainty in light of the vote could weaken the attractiveness of the UK as a hub for financial technology innovation and investment.

"A range of factors have contributed to the UK, and London in particular, having developed into a centre for fintech innovation," Dunn said. "The Financial Conduct Authority (FCA) is widely recognised as leading the world in terms of a progressive approach to fintech regulation and in engaging with fintech start-ups eager to operate in the UK market. It is one of the main reasons why fintechs looking to set up in Europe choose to base themselves in London and not other financial centres."

"However, other important factors include the fact that, through the EU's passporting regime, which provides mutual recognition of regulatory authorisations across EU countries, fintech providers based in London can gain market authorisations to operate across the European market quickly and easily. In addition, the EU's rules on the free movement of workers across the trading bloc means fintech companies have been able to attract talent from a larger pool of people than is available within the UK alone," she said.

Dunn said there are steps the UK can take on its own to improve areas like the shortage in digital skills that currently exist, such as through a drive to increase interest in STEM subjects in schools and universities, but that broader action is also needed quickly to replicate some of the benefits EU membership has offered the UK's fintech community.

"Because fintech is an area moving at high-octane pace, there is now a need for the UK government to quickly negotiate and agree a system that replicates the benefits of passporting and free movement of workers," Dunn said.

"Other financial centres in Europe are likely to look to exploit any lingering uncertainty about the environment in which UK-based fintechs will be operating in outside of the EU to build their own profiles as hubs for fintech innovation and investment," Dunn said.

"In addition, investors based in Silicon Valley and other parts of the world looking for fintech investment opportunities in Europe could be attracted to look beyond fintechs based in London for growth and return prospects if it becomes harder for UK-based fintechs to expand into European markets and attract talent," she said.