Fintech, the use of technology to reinvent and streamline financial processes, is one of the fastest growing areas in finance. It's also a sector where Britain has a competitive advantage thanks to its strong financial services industry, top universities and ready access to skilled workers from around Europe.
However, many are worried that the end of free movement and financial passporting could lead to Britain's supremacy being threatened. To get a feel for what is happening I spoke to Taavet Hinrikus, co-founder and CEO of TransferWise, a peer-to-peer money transfer service headquartered in London with a turnover of nearly £28m.
Like other business leaders that that I have spoken to, Hinrikus admits that, "no-one really knows what the impact of Brexit will be", since negotiations haven't really begun. However, as far as TransferWise and similar fintech firms are concerned, he thinks that there are two major worries: passporting and access to skilled labour.
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At the moment, financial passporting means that, "because we're licensed in the UK, we're "passported" through Europe". This is "massively helpful when you're starting out", because it drastically cuts down the amount of time and effort needed the establish a pan-European presence.
Indeed, passporting means that is easier for British fintech firms to operate inside rest of the EU than it is for certain American fintech firms to operate within other parts of the United States. TransferWise has found this out the hard way since it has had to get licences to operate in the US on a state-by-state basis. Unsurprisingly, this is "a long, complicated process". Even today, Transferwise only has licences for 41 out of 50 states, which means that it can't directly accept dollar deposits from customers in New York, but instead has to do so via a banking partner.
Based on the way things look at the moment, Hinrikus reluctantly believes that the battle for British firms to retain automatic access "does seem to have been lost".
Because access is so important, he is resigned to the fact that, "we will need to get a licence in another European country and we will open an office there". While he doesn't anticipate forcibly relocating anyone from London to the continent, he will respect "our team's choice if they wish to relocate". Of course, the need to establish a legal presence in another country will be much "more stressful" for smaller companies who have limited funds.
As well as financial passporting, the possibility of immigration controls is another concern. Hinrikus, who is originally from Estonia, has a unique perspective on this issue. As he puts it, freedom of movement within the EU meant that "I was able to move to the UK and work in London and then start TransferWise here".
Overall, he also thinks that the debate over immigration has become lopsided, solely focusing on the negatives, and overlooking the fact that, "immigration is key for innovation and economic growth" and that "every country depends on it". More prosaicly it could also affect TransferWise's development since "when you're growing a global business, you need to be able to hire the best in the world".
Hinrikus also thinks that Brexit comes at a critical time, with London's early dominance being increasingly challenged. He points out that "even before Brexit, there were a lot of cities looking to become fintech centres". Indeed, Britain faces competition, "not just in Europe but across the world".
Of course, its not all doom and gloom as London still has some advantages. For example, thanks to the FCA's efforts "the UK has the leading regulator in the world in this sector and others look to it for inspiration". However, he warns that if Britain wants to "set itself apart and even cement its position" it needs to quickly take "decisive and proactive measures".
Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.
He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.
Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.
As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.
Follow Matthew on Twitter: @DrMatthewPartri
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