With Parliament prorogued and the Government suggesting it may ignore legislation obliging it to request a further Brexit extension from Brussels, it remains a possibility that the UK may leave the EU on 31 October 2019 without a deal. In light of this it is important that businesses continue their preparations for Brexit in order to ensure they are able to continue to offer their services with minimal disruption.
As part of this preparation, on Tuesday 10 September Hogan Lovells and Innovate Finance co-hosted a Brexit focused roundtable with FinTech companies to share and discuss their key preparations, considerations and concerns in planning for Brexit.
With uncertainty seemingly set to continue for at least the immediate future these companies are taking the lead in Brexit planning and hope to be prepared for Brexit, regardless of the form it takes. In this piece we share a summary of their concerns and insights.
Prior to the session Innovate Finance commissioned a Brexit Survey of the FinTech sector, providing new insight into the challenges and opportunities faced by the FinTech sector, one of the fastest growing in the UK economy, as the UK looks to depart the EU. The Innovate Finance Brexit Survey highlighted 43% of respondents believe passporting, cross border transactions; and servicing EU clients will be the most affected areas by Brexit. 23% of those surveyed expressed an interest in additional information from Government about Trade and 17% of respondents are considering moving to a different jurisdiction.
Many FinTech companies provide services that cross borders and it came as little surprise that the potential loss of passporting rights was voiced as a major concern amongst the participants.
In order to address this concern, many of those present and surveyed had at least considered the option of seeking authorisation in an EU Member State in order to retain access to markets across the EU. The Netherlands and Ireland were mentioned as potentially desirable locations for companies to become authorised, however, some difficulties had been experienced by those engaging with regulators in Member States less used to regulating such entities. The lack of experience of some regulators can lead to increased costs, a greater administrative burden and delays for companies seeking authorisation. With the Brexit deadline potentially less than 2 months away, delays could mean that companies, despite their best efforts, are not ready for exit day and are unable to continue providing their services.
A further concern raised by those present was the lack of an EU-wide temporary permissions regime. Whilst in the UK, EU businesses will be able to take advantage of the Temporary Permissions Regime and operate as normal until they become formally authorised by UK regulators, the approach in the EU depends on the individual Member States that UK companies desire to operate in. Whilst some Member States have indicated that they may establish a temporary regime, this is not the case across the entire EU and some systems may not be in place in time for the UK's departure. Hogan Lovells has compiled information on these measures in respect of the following jurisdictions in which it has offices: UK, France, Germany, Luxembourg, Poland, the Netherlands, Italy and Spain. The document will be updated on an ongoing basis and the most recent version is available here.
Another major issue that was raised in the sector was ensuring UK FinTech companies are able to attract and retain talent following the UK's departure from the EU. Many firms are currently ensuring their EU employees take advantage of the EU Settlement Scheme, designed by the Government to allow EU citizens currently in the UK to remain after exit day, but the picture is less clear once the UK has left. The potential need for employees to have visas and the risks and expense associated with sponsoring such employees has led to concerns that the UK will no longer attract the best talent and, even if it is able to, not all companies will have the resources to take advantage of this.
Many of those present and surveyed expressed concerns about data protection in the event of a no-deal Brexit and the potential restrictions that could apply to data being transferred from the EU to the UK as a result of the UK no longer being part of the GDPR regime.
The data protection picture is far from clear and changes regularly. Organisations need to make sure they keep on top of the latest developments to ensure there are no nasty surprises.