How might Brexit affect the regtech industry?
John Dobson is chief executive of SmartSearch
Brexit Brexit Brexit, it is all anyone seems to be talking about, so I thought it was time to take a look at what leaving the EU might mean for the UK’s booming regtech industry.
There has been talk that post Brexit, there could be a cull of regulation as the UK moves away from the number of rules and regulations set by the EU. But when it comes to financial services, this is unlikely to get rid of any of the existing regulations.
The FCA has been instrumental in the formation of EU regulations, so it seems unlikely that they will move away from them. During this negotiation period, the UK is bound to following existing EU regulations anyway, and post-Brexit, we may even see more put in place as the UK looks to ensure its regulations are equal to or better than the rest of the EU so ensure ease of trade.
Because of the FCA’s innovative outlook on regulation, we have seen a booming fintech and regtech industry in the UK. The 2019 RegTech 100 – a list of the 100 most innovative and pioneering regtech companies in the world – was dominated by the UK, with 30 from the UK, up from 26 the year before.
The only thing we might see is the FCA being able to react more quickly to the ever more sophisticated technology used by criminals due to not having to go through the EU. If the FCA is able to legislate just in the UK it could give UK regtech firms a creative advantage over the rest f Europe. The UK has historically been a good place to start a regtech firm because of the huge infrastructure around our financial services sector. Due to the groundwork already laid in the UK, it will take years for other European countries to catch up, thereby solidifying the UK’s place as the home of regtech.
Talent and investment
According to the latest TechNation report, between 2011-2016, the UK attracted £28bn in tech investment; more than any other European country. London alone received £13.8bn of investment, more than Paris, Berlin and Amsterdam combined. And while London is still very much the hub, the UK is presenting a changing picture, with two thirds of tech investment recorded outside of London with the Sheffield, just down the road from us, receiving £61m on investment between 2015 and 2016. So, if these figures are indicative of long-term confidence in UK tech, strong investment in fintech and regtech is likely to continue.
However, will we still have access to the talent needed for continued growth? Currently, around 30% of UK tech employees come from the EU and this is worrying, because, while their right to work here will remain in place until we have formally left, once we have their work status is uncertain. So, the regtech industry’s future could be at risk if the UK is unable to negotiate a deal that allows easy access to talent.
Currently, everything is still up in the air. Theresa May has negotiated a deal that has been approved by the EU but is unlikely to get through parliament, so the UK’s future in relation to Europe remains as uncertain as it was a year ago.
However, whatever the outcome, it is doubtful that we will see deregulation. Money laundering and other financial crime are on the rise, especially in the UK, so we are more likely to see more regulation than less. If and when we’d leave the EU, the connections between the different regulatory bodies will become more complicated, so the need for expert regtech companies to provide the solutions will be more important than ever.