Brexit's implications for the U.K.'s technology industry are deepening political fractures, with no clear answer as to how startups fintechs and challenger banks can operate in the U.K., recruit workers and collaborate with partners in the European Union after the U.K. leaves.
The chaos was exemplified by Monday's resignations from
"Government instability at such a crucial time for negotiation with the EU is likely detrimental to [the U.K.] economy overall in the short term — and potentially, the long term," said Virginie O'Shea, a research director at Aite Group. "The government needs to keep the negotiations moving if it hopes to meet the self-imposed targets for Brexit, so any major revisions or significant delays will cause multiple problems for businesses including fintechs across the U.K."
The prime minister's position more closely aligns with a "soft Brexit" in which the U.K. would negotiate a deal with the EU to retain some nominal market relationships with EU countries. That position is at the heart of recruiting attempts to keep banking and fintech companies from leaving the U.K., an exodus that would damage London's economy and status as a technology hub. London's mayor,
The financial and technology industries in the U.K. are
There probably will not be clarity on passporting until the dust settles. The U.K.'s banking and fintech industries are already bearing the regulatory and strategic burden of having one foot out of the EU. That's lead to strategies among financial and technology firms such as
"The financial sector as a whole also needs some certainty about important issues such as financial regulation and equivalence with the EU," O'Shea said. "Banks are already moving operations out of the country, which shrinks the overall pool of potential customers for the fintech industry in the long term."
Cities across Europe are trying to lure technology companies away from London, playing on the fear of Brexit. The fintech market in the U.K. is huge. Even following the Brexit vote,
The political uncertainty, along with unrelated political spats such as a trade war between the U.S. and China, have European countries confident they can peel off London's dominance. Paris, Berlin, Amsterdam and Stockholm have all made pitches to U.K.-based fintechs.
The U.K. has countered with a
"It is tough to attract and retain talent for the sector in a very competitive market, so hurdles related to political uncertainty and legal uncertainty, such as status of workers, status of the customs union, etc., put the U.K. at a significant disadvantage," O'Shea said.
The existing retention strategies face a new challenge this week because they were based on some form of a center-right driven exit from the European Union, with the hope of a soft Brexit. But this week's turmoil, which is in essence a fissure in the U.K.'s right political flank, could lead to new elections resulting in a dramatic leftward shift; or in a move farther right that could include Johnson or a hardline ally making a run for Prime Minister.
As a result, there's now confusion over what the domestic political and regulatory environment will be — in addition to the Brexit uncertainty.
"It is likely that U.K.-based organizations that have significant business in the rest of the EU will become ever more concerned regarding that EU business as Brexit talks appear to disintegrate," said Tim Sloane, vice president of payments innovation at Mercator Advisory Group. "The general swing of the electorate towards deregulation may also crate more caution within some organizations."
