Innovate Finance Response to the Prime Minister’s Speech on Brexit

Seven months on from the Referendum result and around 10 weeks until Article 50 is triggered we finally have a limited update on the biggest geopolitical and economic shift the UK has faced since we joined the EEC in 1973.

One can argue it has been clear for some time that control of borders and immigration has trumped access to markets and friction free trade within the EU.

The 12-point speech, delivered by the Prime Minister this morning contained a number of key announcements, which will have a material impact on the future of the UK FinTech sector.

Here are some highlights, some of which formed part of the 12 points:

  1. We will leave the Single Market but seek comprehensive free trade agreement with the EU (financial services and auto industry named as highly integrated)
  2. End free movement and control number of people coming to the UK from the EU
  3. Confirmation that parliament will vote on any final Brexit deal between the UK and the EU
  4. Answers will be provided wherever they can be to business, citizens and investors
  5. We will leave “parts” of the customs union to strike new global trade deals
  6. There will be a 2-year timeframe to agree the Brexit deal and a phased transition or transitional arrangements after that to ensure a smooth transition to the UK’s new reality outside of the EU. (Highlighted as important again for financial services regulation and immigration)
  7. EU citizens will be given assurances on their status ASAP as soon as UK citizens receive similar assurances in the EU
  8. There will be continued collaboration on areas such as science and technology, space medical and environmental projects
  9. No deal is better than a bad deal. UK will walk away and shift economic model in response if we do not reach agreement

Single Market

We do not have any details on what ‘being outside’ of the single market looks like in terms of financial services access, but the sector was explicitly mentioned a number of times. It looks as though the comprehensive trade agreement has financial services and automotive as special cases, especially given the complex web of interdependencies, regulation and supply chains.

Issues such as the payments framework (SEPA, PSD) will be critical, as will our future data regulations (GDPR). Any comprehensive trade agreements and transitional agreements will need to takes these into account. Cloud based economic models such as FinTech blur the sector divide and a wider view of economic activity and integration may also be needed.

Immigration

While the PM said the UK will seek control over immigration from the EU, it still remains to be seen what this will actually involve.

In response, Home Secretary Amber Rudd said there were “different ways for delivering more control over immigration”.

Innovate Finance members, as with the FinTech sector as a whole, are inherently international. 30 per cent of the founders in our membership were born overseas. A commitment to reassuring EU nationals already here in the UK should be welcomed, but should be undertaken unilaterally if the UK is to continue to attract the best and brightest.

Vote in Parliament

The PM also confirmed that the final deal she reaches with EU leaders will be put to a vote in both the House of Commons and the House of Lords. If Parliament votes to reject the deal, two years after the UK triggers Article 50 there could well be an early general election.

New Economic Model

The Prime Minister also shares the Chancellors’ view that Britain stands ready to consider alternative economic models following Brexit if necessary.

Philip Hammond was quoted on Sunday as saying the country could change its economic model to regain competitiveness if it were to leave the EU without an agreement on access to the single market. This has been widely accepted to mean tax cuts and regulatory arbitrage.

Conclusion

Whatever the outcome of the negotiations, the UK should maintain a continued commitment to digital transformation. Rather than purely focus on a competitive taxation regime, the UK should pursue more “activist regulation” such as Sandboxing, Open APIs and RegTech to transform our financial services sectors in an increasingly digital economy.

Moreover, a new economic model may require a fundamental shift not just in our policy-making, but also in the technologies which are utilised to deliver this. It is in this context that a new FinTech Big Bang may once again enable the UK to set the agenda in financial services, whatever the outcome of Brexit.

To find a full transcript of the Prime Minister’s speech on Brexit please click here.