FinTech sector in the wake of Brexit

What a year it has been. 2020 brought a changing world in which distances seem to get longer and our livelihoods are changing at a greater pace than before. Coping to these changes has been difficult for households as well as companies as trade and commerce have shrunk on a global scale. But the year has seen some positive developments. The Christmas miracle seemed to have happened as the UK and the EU announced they had reached a long-awaited deal on Brexit! Jolly news indeed for people and businesses, but the deal was not equal for all sectors.

Fintech (Financial Technology) is part of the financial services sector, which accounts for 9.4% of the UK GDP. Of this, fintech generates £6.6 billion of revenue in a year. It employs around 77 000, expected to grow to 105,500 by 2030. Brexit deal, leaves a lot to be desired from the fintech companies and it has become clear that the impact to fintech sector will be negative in the long run. The UK fintech has relied on the favourable regulation and large talent pool for growth. Both of these are at risk in the new normal.

The cradle of finance

London has been leading the whole of Europe in terms of investment from around 17th century. However, the roots of London’s status as the de facto European financial centre is much more recent. Canary Warf[1], the London’s financial powerhouse, was converted from an abandoned port when Thatcher’s government wanted to boost banking sector during the 1990s.[2] The UK has always been well located regarding international trade. Even though financial services now mainly flow via the internet, the UK and London are situated perfectly in terms of geography and partly in culture to act as intermediaries between Europe and the America. This position made London and consequently the UK the leader in many capital heavy industries in the EU.

“Brexit is especially challenging for FinTech companies as they rely heavily on the favourable financial regulatory framework in the UK and diverse non-national labour pool.”

But as Brexit raised a question mark for the continuation of this role in the future, London with its large financial sector had to start preparing for the possibly biggest change in the country’s history. Fintech is one of the most capital heavy industries. As with many new inventions, this branch of financial service technologies has fuzzy lines. Sometimes it includes everything from legal services to cash transactions if they connect to finance. Sometimes the name is almost a placeholder for the new types of banks such as Revolut or Monzo. In this article they are defined as providing enhanced and more personal financial services through the internet. These can include consultation services as well as digital banks.

Brexit is especially challenging for these companies as they rely heavily on the favourable financial regulatory framework in the UK and diverse non-national labour pool. Both of these are compromised in the future even with the new deal. According to a Tech City UK survey (Cause for Optimism as UK Tech Rises to Brexit Challenge, 2016[3]) of 1,200 CEOs and executive officers in major UK fintech companies, most responded that they expected the negative impact of Brexit on the fintech industry not to be serious. The statement comes even though major banks and financial institutions have moved hundreds of millions worth of assets overseas to mainland Europe or to the Republic of Ireland.

It is true that the negative impacts of Brexit on fintech have not been immediately evident on the 1st of January 2021. Legislation regarding passporting[4] and MiFID II will allow at least some form of exporting of financial products. The worries of Brexit might not be pressing at the moment, but they need to be addressed in future extensions of the trade deal if fintech sector wants to continue thriving in the UK.

FinTech now

Even with Brexit looming ahead, the investments into fintech have not yet stalled. One year after another fintech investment has been climbing. 2018 investment was £24 billion in total. This meant that 39% of European fintech venture capital funding was invested in London in 2018. That is almost double the 21%, which went to the runner up Berlin. Interestingly Stockholm was third in Europe.[5] Next year saw this number to grow to £36 billion, London leading the European cities. The defining feature of 2019 was the huge spike of investment in Q3, which was due to the acquisition of WorldPay by FIS.[6]

Large part of the success of fintech in the UK has been attributed to lack of regulatory barriers. Regulators work with the companies, lowering the entry costs to the market. Charlotte Crosswell, CEO of Innovate Finance argues[7] the progressive regulation and policy framework within the UK has been a significant contributing factor to the growth of fintech. The UK FinTech State of the Nation report[8] also highlights the lack of regulatory barriers as a key factor contributing to the appeal of the UK. One example is Innovation Hub launched in 2014, which helps fintech companies to establish themselves in the UK market at a very early stage. There, regulators work closely with start-ups to help them thrive in the regulation heavy financial sector. This eases the markets access and helps small fintech companies grow. Regulators also get important information about how the regulation actually effects the companies and the market as a whole. These regulatory sandboxes have helped to elevate the UK market from the European competition. However, this regulatory difference between the UK and the EU will be a problem after Brexit when moving from one market area to another as there was no explicit deal on the trade of financial services.

Second cornerstone for fintech sector in the UK has been the talent pool. For now, London and the UK in general have been an appealing location for many skilled workers around the world. A study from Innovate Finance (Supporting UK FinTech: Accessing a Gobal Talent Pool, 2018[9]) estimated 42% of the current UK fintech workforce is drawn from non-UK nationals. From this, 28% were people from EEA member states. That is a significant proportion, which is likely to change in the future if companies opt to stay exclusively in the UK. There are conflicting arguments on the effect of Brexit on the talent pool. Some say strong university sector in the UK will still keep it fresh and others say the Brexit will change appeal of the UK for good. What we do know is that after Brexit, free movement of labour between the EU and the UK will cease. Inflow of workers and students will decrease, which will affect the possibilities of fintech companies. The UK government has promised to keep a door open for skilled labourers enabling easier access to the country but it is not guaranteed that the UK will still be the preferred option after Brexit. Especially as EU starts to promote its own countries for fintech[10].

These changes in the industry will not manifest themselves instantly. The well-rooted status of London will not vanish overnight. Aforementioned statements by CEOs and authorities show that there is strong confidence for the UK fintech sector in the future as well. Particularly the incredible investment speaks for this. The confidence indicates that the growth of the UK fintech industry is not based on short-term investment horizons or certain fintech companies or products. Instead, the innovative and business-friendly regulatory policy of the government has led the UK fintech ecosystem. Deals between the UK and the EU, North America and Asia will define how Brexit will effect fintech on the long-term.

Movements in FinTech field

Banks, financial institutions and fintech sector are not just waiting and hoping for the best about Brexit. There has been major movements by fintech companies to establish themselves in EEA countries. A number of fintech businesses currently only operating in the UK are beginning the process of setting up companies in Ireland and elsewhere in the EU in order to preserve passporting rights. Companies are not necessarily moving their whole headquarters and operations away from London but they are relocating branches and assets to other countries. According to New Financial[11], more than 330 firms in banking and finance have moved or are moving business, staff, assets or legal entities away from the UK to the EU. These numbers are likely to increase in the near future. Amsterdam has been a major city where fintech companies have moved their assets but no single financial centre has dominated the relocations.

Major banks have moved their innovation teams and large amounts of assets abroad this year. HSBC opened an innovation team of 50 in Toronto, but was keen to remain in London as it also opened a team of a 100 people there[12]. Barclays moved £160 billion of assets to Dublin in an effort to remain within the EU boarders. Deutsche Bank Shifter €400 billion from its balance sheet from London to Frankfurt, a non-surprising move as they have headquarters in Germany. Lastly, JP Morgan also moved €200 billion into Germany[13]. In total 7 500 jobs in Financial Services have moved from London to Europe[14]. Not all of these jobs fall into fintech sector but these movements still affects the whole economy of London and the UK.

The odd one out is Citi. It launched an innovation lab in London in 2018[15]. This might have been fuelled by the incredible investment at the time, since the innovation lab still relies heavily on the talent pool of the region. Even with some of the companies still investing in the UK and establishing operations, the larger trend has been that most of the movements have been away from the UK and London.

Future predictions

Even though there has been major movement from smaller to big financial institutions, the trust in London remains steady. PwC expects there to be more investment in the fintech sector in the future and regulation would continue to change in a favourable direction in order to preserve the appeal of the UK[16]. KPMG (Fintech Focus, 2020[17]) estimated that the UK fintech funding has remained steady despite covid-19 albeit some smaller start-ups struggling with cash funds not covering the pandemic. KPMG expects corporate investment to be a big focus in the UK as many financial service companies double down on their fintech funds. The appeal of London is most apparent when looking at the fintech deals. Seven of the top 10 biggest European deals in 2020 happened in the UK[18]. There is clearly a limit to the amount of assets fintech companies move to the EU. Many fintech companies have moved some part of the financial assets out of the UK. Many of those will only establish a small presence in EU market and try to maintain their current UK operations. The EU is not a marginal market for them and having access to 500 million potential customers is not something any fintech company wants to just throw away.

“The EU is not a marginal market for the UK and having access to 500 million potential customers is not something any fintech company wants to just throw away.”

Ironically, the pillar that keeps fintech sector standing strong in the UK is also its future problem. Favourable regulation for financial companies is problematic in any deals regarding the financial sector. The EU is most likely not going to agree on the UK having regulation, which gives it a competitive advantage in exporting financial services. On top of this, uncertainty about the markets and trade of fintech remains regardless. Even with a deal, there has to be complimentary regulation between the EU and the UK to enable trade. This is because EU requires the legislation to be comparable between the markets at all times. Financial institutions have thus far trusted, that even without passporting, trade of financial services would still be possible due to the MiFID II scheme. MiFID II[i] agreement allows financial service businesses to continue operating on both markets after Brexit, provided it registers first with the ESMA[ii].

This can give some reassurance that the EU market can be reached but there are major problems with it. In the MiFID II scheme fintech companies can only provide services to wholesale clients in the EU. This limits their reach and thus business opportunities. Another problem with the scheme is that if regulation changes in the UK, EU can revoke the right to trade unilaterally. This makes the arrangement very unpredictable in the long run. The EU is deliberately raising an issue of regulation as the old financial centre, London, now moves outside EU borders. In this way, EU is bolstering its existing investment hotspots in Germany and France. The UK government plans to continue the favourable regulation in order to foster fintech growth, could in fact hurt the sector. This would risk the EU to revoke the trade.

Another pillar holding the UK fintech sector high was the ample talent pool. This too, will be under threat in the future. Most clearly, there will be a problem with talent acquisition from the EU as the free movement ceases. As noted above, large amount of fintech employees come from EEA countries. Leaders of fintech companies have sited the sector to be well adapted to changes. Innovate Finance paper (Supporting UK FinTech: Accessing a Global Talent Pool, 2018[19]) stressed the UK government to promote more technical and engineering education in order to increase the talent pool. Promotion of STEM subjects helps the sector. But changes in education and the outcome of these policies lay far in the future. Educating a new generation of innovators in fintech is a slow process which most of the companies in London cannot afford to wait. Government has promised be open for skilled people[20], meaning talent could still flow to London and the UK even after Brexit, with minimal barriers. There are conflicting arguments on the effect of Brexit on the talent pool. Some say strong university sector and the ease of entry for skilled labour to the UK will still keep it fresh. Others are saying the Brexit will change the appeal of the UK for good and slowly erode the pillars that fintech once so strongly stood on.


A trade deal between the UK and the EU is in all consideration good. It provides a common ground to continue discussions on further trade deals on other sectors, not covered in the Christmas package. One of the focus areas for both parties should be financial sector and fintech in particular. This article can be read as only the UK losing out on possible markets and worsening its position in the global fintech market. This is not the case. The EU needs the UK and London with their financial sector in order to remain at the top of the competition. In addition, London does not represent just the 68 million strong market, rather it is a steppingstone (quite literally) to North America. With close cultural ties, common language and relative closeness, the UK offers the best chance for European companies to expand in the West.

The first deal reached on Christmas was relatively small and did not include some of the most important sectors in either of the economies. But the deal provided a political victory that both parties could claim. Fishing is not the most crucial sector for the UK, but it is the most tangible. There will be more deals made in the future and those should be concentrated on preserving the financial stability of Europe. With China growing its influence ever greater and US battling it in trade, a unity of Europe is required and the leaders should make an effort to preserve that. The UK will remain a European nation and a close trade partner of the EU, Brexit or not.


[1] The name comes from the history. Area was used as a port in the 19th and 20th century to import and export fruits from Canary Islands.



[4] With a deal on 1st of January 2021, the passporting rights will continue accordingly. The current withdrawal agreement allows the implementation period of the new deal to be continued till 2022.


[6] KPMG “Pulse of FinTech, H1 2020”. September 2020


[8] Innovate Finance ”UK FinTech: State of the Nation Report”. Department for International Trade, April 2019

[9] WPI Economics “Supporting UK Fintech: Accessing a Global Talent Pool”. Innovate Finance, Autumn 2018









[18] KPMG “Pulse of FinTech, H1 2020”. September 2020

[19] WPI Economics ”Supporting UK FinTech: Accessing a Global Talent Pool”. Innovate Finance 2018.


[i] MiFID II is a legislative framework instituted by the European Union (EU) to regulate financial markets in the bloc and improve protections for investors. Its aim is to standardize practices across the EU and restore confidence in the industry, especially after the 2008 financial crisis

[ii] ESMA – The European Securities and Markets Authority is a European Union financial regulatory agency and European Supervisory Authority, located in Paris.  ESMA is an independent EU Authority that contributes to safeguarding the stability of the European Union’s financial system by enhancing the protection of investors and promoting stable and orderly financial markets