With last year’s Brexit decision casting uncertainty on U.K.-based e-money passporting, the Emerging Payments Association (EPA) has released a new report recommending the best options for U.K.-licensed fintech and financial services companies in danger of losing their European Union passporting rights following the U.K.’s exit from the EU. The Financial Conduct Authority reports that U.K. companies have 336,421 passports held by 5,500 U.K. registered companies—licenses many of those firms use to provide financial services throughout the European Economic Area (EEA) under existing EU passporting rules. The U.K.’s imminent departure from the EU—likely to occur in 2019, according to the EPA—could mean many of those providers may be unable to continue offering their products and services across the EEA, the report noted.
Such an outcome “would be a major disaster for the U.K. economy and the payments/fintech sectors,” warned Tony Craddock, director general, EPA. The British fintech industry is worth an estimated £6 billion (US$7.2 billion) to the country’s economy annually, with payments comprising more than 40 percent of all U.K. financial services revenue in 2016, the EPA report noted. The EPA is supporting efforts to potentially maintain passporting rights post-Brexit, but should U.K-based passporting become a thing of the past, the EPA is working to assist firms in becoming licenses in other EU countries, as well as growing their business in non-EU markets.
“[C]ompanies based in the U.K. that rely on passporting to other EU jurisdictions will have to make plans,” notes Judith Rinearson, partner in the fintech and consumer financial services practices group of K&L Gates LLP and a member of the EPA’s advisory board. “This is especially true now that [U.K. Prime Minister] Theresa May has confirmed [Jan. 17] that Britain is indeed taking the “hard Brexit” approach, therefore leaving the EU’s single market,” she tells Paybefore.
For companies seeking a license in another EU nation, the EPA report identified six potential alternatives it deemed to have the strongest potential for fintech and financial services providers: Cyprus; Denmark; Ireland; Luxembourg; Malta and Sweden. As detailed in the report, those markets have characteristics that could benefit fintech firms, including fiscal strength, an openness to financial technology and relatively workable regulatory frameworks. Each market also offers unique assets. For instance, Ireland is in position to benefit from Facebook’s recent e-money licensing in that country—a move that will do much to bolster Ireland’s status as a “major new e-payments hub” in Europe, the EPA report said.
The EPA’s market suggestions don’t necessarily mean fintech firms should leave London, which will always be an important market, Rinearson says. Rather, “it’s about opening a second office where the company can continue to access the EU market via passporting,” she says. “The report provides helpful guidance on the kinds of questions to ask and issues to address whenever one plans to open an office in a new, foreign jurisdiction.” The report is likely to be updated as more EU jurisdictions announce special measures for fintechs, Rinearson adds.
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