The UK has positioned itself as a world-leading hub in emerging FinTech (financial technology) but the potential regulatory and business challenges posed by Brexit risks ceding ground to America and Asia Pacific rivals, says a new report from ACCA (the Association of Chartered Certified Accountants).
The report, FinTech – transforming finance, finds that FinTech’s impact on finance and banking is proving to be as revolutionary to the sector as the internet has been for other areas of the economy. Yet the advantages offered to London’s FinTech sector through supportive regulation and geographical location could be off-set through loss of passporting rights and business uncertainty through the Brexit negotiations.
Anthony Walters, ACCA’s head of policy for Western Europe, argues that until now the UK has provided a model of supporting and nurturing London’s FinTech sector.
“In recent years there has been multi-billion investment in FinTech in the US, India and China. Yet despite the US benefitting from its economic strength and world-leading innovation centre in Silicon Valley, the implementation of FinTech’s potential has been slowed by regulatory hurdles.”
“In the UK, the Financial Conduct Authority has provided a model for regulation which has been conducive to nurturing innovative technologies. Combined with London’s unique geographical and infrastructural strengths as an international finance centre, as well as its status as leading global city, the UK has proven to be a highly attractive location for businesses, investors and innovators.”
Understanding the intricacies of global best practices and adapting them for varying national contexts can set aspiring FinTech hubs on a course for success.
Yet Anthony Walters warns that the potential impacts of Brexit could challenge London’s status:
“The UK’s FinTech sector currently employs more than 66,000 people, with approximately a third coming from Europe. Inevitably the potential burdens of securing work permits for highly skilled individuals in a dynamic industry creates significant uncertainty, as does the regulatory headache which would be created by the loss of passporting rights for UK-based banks operating in the EU.”
“At the moment London’s strengths indicate it can be resilient to these issues, but the potential of FinTech to transform finance means that its future must be considered in any future negotiations.”
Overall Anthony Walters thinks that the rise of FinTech is good news for industry innovation and consumer choice:
“While the scale of transformation is hard to predict, there is no doubt that the impact of FinTech across the traditional functions of finance has already been significant and there is much more to come. Major banking institutions are already responding through large-scale research and investment in the face of competition from start-up challengers.”
“This is good news for consumers and firms, as the explosion of choice in a traditionally conservative industry offers a range of new possibilities of doing business based around their bespoke needs.”
Yet Anthony Walters argues that the regulatory challenges posed by the speed of innovation places tough new demands on business operating in a fast-evolving, global landscape.
“FinTech opens a range of possibilities for business, from new banks to streamlining payments and lending, yet exploiting these opportunities will require adaptation from firms as well. For instance, we are already seeing a rise of a blossoming ‘RegTech’ (Regulation Technology) sector which can use automation and data-analysis to provide intelligent, low-cost solutions to streamline this process.”
Anthony Walters adds that it is professional accountants who will be best placed to navigate these obstacles.
“While the rise of FinTech will reduce the labour time of much contemporary finance work, the fast-evolving nature of technology adoption will also necessitate transformations in tax compliance, audit and reporting processes.”
“This will in fact place greater emphasis on the importance of having forward-thinking professional accountants equipped with a strong digital understanding and global vision to guide firms through the opportunities and challenges ahead.”