The pressure continues to mount on the UK’s Prime Minister to provide some clarity on the exit deal for withdrawal from the EU. Some reports suggest she should , bearing in mind the difficulty that exists in reaching a consensus.
And, with the date set for our exit still 29 March 2019, there is increasing concern surrounding the possibility of a no-deal Brexit and what this will mean for industry.
Why is a no-deal Brexit a possibility?
For those with Brexit fatigue, here is a brief summary of where we are. If the Prime Minister’s draft withdrawal deal is passed by Parliament, then Brexit will go ahead in March as planned. The 29 March will mark the state of the transition period deemed necessary to thrash out trade agreements.
The to this vote, which will now take place on 12 March, just two weeks before Brexit day. Assuming it is passed, the transition would last until December 2020 at the latest. If no agreement on the final terms is agreed during this transition period, the ‘backstop’ will come into force. The backstop will allow both parties to continue trading. It means the UK would enter a single customs territory, with Northern Ireland remaining under EU single market rules to ensure an open border between the UK and the Republic of Ireland.
This met much opposition, particularly from the DUP, upon which the Prime Minister relies to stay in power. From this information, global investment research firm of a ‘no-deal’ Brexit, where the UK would leave with no agreement at all.
The UK Fintech industry and a no-deal Brexit
London is the European . Some even consider it the Fintech capital of the world. Businesses in this sector have attracted in excess of $5.08 billion worth of investment since June 2016. In comparison, Paris received $1.38 billion, Stockholm $683 million and Berlin $1.02 billion.
While it’s not known how a no-deal Brexit would affect Fintech, below I outline what we do know. Companies should be aware of the following and begin preparations if possible.
What is a third country customs regime?
In the event of a no-deal Brexit, the Government has said that the UK would enter into a “third-country customs regime” with the EU. This will mean initial supply chain disruption, at the least. There would also be delays importing and exporting software and equipment.
Imported goods and services from the EU would be considered third-party, which means they would have to pay import VAT. This will increase costs. Services from the Fintech industry heading out to the EU will mean the sender paying VAT in the country of entry. There would also be potentially extensive border delays due to more complex checks.
Potential impact on investment
Some Fintech companies have made decisive moves that have alarmed the industry. For example, one of the city’s few unicorns, TransferWise, to Europe. The CEOs, Kristo Käärmann and Taavet Hinrikus, are clear that the move is partly down to the possibility of a no-deal Brexit, saying that the UK is no longer the “best place to build a Fintech business.”
However, London remains Europe’s Fintech capital, and it’s hoped that venture capitalists will continue to invest while we wait for Brexit clarification. Should we face a no-deal Brexit, this could further spook investors and inevitably this will impact small start-ups the most. To combat this possibility, start-up owners can consider launching their business outside of the UK.
How would workers’ rights be affected?
London is the such a successful Fintech hub because it has attracted the best and brightest people from around the world. An EY study shows there are more than , the highest in any city in the world. According to data from Tech Nation, more than 50% of workers in London’s Fintech sector are from overseas.
The Government say that they will maintain workplace rights for EU nationals if there is a no-deal Brexit. In it says: “The EU (Withdrawal) Act 2018 brings across the powers from EU Directives. This means that workers in the U.K. will continue to be entitled to the rights they have under U.K. law, covering those aspects which come from EU law.”
However, the future of EU workers who earn less than a stipulated threshold announced , looks more uncertain. For start-ups that want to hire EU staff in junior or mid-level roles, it could mean they only have access to the domestic labour market, which could mean shortages.
Any start-up concerned the rights of its employees to work in the UK should encourage applying for permanent residency if possible. This allows a citizen from outside the country to live permanently in the UK if they have spent more than five years here. The Government says that citizens can apply for permanent residency in the UK until 31 December 2021.