Originally published by AAT
The writer Samuel Johnson famously coined the phrase “when a man is tired of London, he is tired of life.”
When a bank grows tired of London, especially in the wake of Brexit, it simply moves to Frankfurt.
While very little is currently known about the terms of the UK’s exit from the European Union, the financial services firms that call the capital home have already been formulating their own exit strategies.
Brussels-based think tank Bruegel has predicted that Britain’s financial services sector could lose up to 30,000 jobs as businesses move their operations to the continent. US banking giant JPMorgan plans to move hundreds of jobs to Dublin, Frankfurt and Luxembourg, while HSBC will send 1,000 staff to Paris.
The exodus is being driven by the desire to preserve passporting rights, which allow companies to provide financial services in all EU member states. Without them, firms must be granted permission to operate in each country.
“It’s likely that UK firms with EU bank accounts will have to apply for new licences in orders to continue operating,” explains Ali Alani, CEO at Imperial FX, a money transfer company based in London. “This could be lengthy and costly, impacting the business’s’ bottom line, and increasing their risk to investors. Firms based in the EU aren’t subject to these changes.”
Fears for fintech
Big banks aren’t the only ones concerned about the effects of losing access to European markets. London’s fintech companies are also negotiating the business impacts of Brexit while searching for a way forward. Industry body Innovate Finance found that venture capital investment in the UK’s fintech startups fell from $1.2 billion in 2015 to $783 million last year.
Analysts attributed the 34 percent drop to the uncertainty surrounding Brexit. The fall in funding signals an abrupt change in fortunes for a city that was named the world’s leading fintech hub by professional services firm EY in February 2016. Now some of the capital’s most successful fintech firms are following their big-bank peers to Europe.
Taavet Hinrikus, CEO of money transfer giant TransferWise, has said that the company will shift its European headquarters from London to the continent by the time Brexit negotiations are finalised in 2019. Electronic payment processing firm PPRO, another of the capital’s fintech giants, has already begun setting up an office in Luxembourg, according to a Guardian interview with CEO Simon Black.
Meanwhile, European cities are looking to capitalise on the Brexit jitters shaking London’s startup scene. In the days after the referendum, a van bearing a billboard with the slogan “Dear startups: Keep calm and move to Berlin” was spotted driving around the capital. The advertisement appeared to have been placed by a political party in Germany, which is proving to be a top destination for UK talent.
Fight or flight
In a presentation at London Fintech Week 2016, Berlin’s Senator for Economics, Technology and Research, Cornelia Yzer, claimed that 100 London startups were planning to move to the German capital. No matter where in Europe the UK’s innovative young businesses go, top talent is sure to follow. If London loses its status as a world-renowned fintech hub, companies that choose to stay in the city could struggle to attract and retain staff.
“The biggest problem that we see now is the access to people. About half of our staff comes from outside the UK with the majority of those people coming from Europe,” says Christoph Rieche, CEO of Iwoca, a London-based provider of flexible credit to small businesses across the EU. “If we’re not able to hire all of these people as we are grow, then it reduces our ability to get the best person for the job.”
Fearful firms should rest assured: London’s once-promising fintech ecosystem isn’t going to disappear overnight. While the shrinking availability of talent and capital is a concern for the finance industry, the true impact of Brexit won’t be realised until exit negotiations are through. On the plus side, analysts who predicted an economic crash after the referendum have (thus far) been proved wrong.
Despite the clamour at the polls, data from PwC shows that the UK’s economy still managed to grow at a rate of 2 percent last year. Whether they’re faced with an impossibly rainy day or a commute on a cramped tube, Londoners are renowned for their ability to endure less-than-ideal circumstances. It’s this spirit of perseverance that will help sustain the capital’s fintech ecosystem in the face of years of Brexit uncertainty.