#Brexit + #FinTechs: What’s your Plan B?

You’re a FinTech startup in the UK. Your plan A was probably a Remain result. Almost nobody in the industry anticipated a Leave decision, and therefore, you, along with a lot of other startups out there, are scrambling to figure out your Plan B.

Building a startup is already an exercise in leading amidst extreme chaos and uncertainty, but the current situation — where we have no idea what will happen in the UK, the EU, and what rights anybody will retain or be afforded — is extraordinary.

Let’s figure it out together.

This is what we know:

• There is no definitive idea of what stance we’re going to take with negotiations;

There is no one unified stance in who will lead negotiations for the UK;

• We don’t know if Scotland might leave the UK; we don’t know if Scotland can invalidate the referendum vote;
• There is uncertainty as to when Article 50 will be issued;
• There isn’t a clear view of whether the EU will be amenable to informal negotiations with ‘someone’ representing the UK before Article 50 is formally issued;
• We don’t know what rights — service, good, capital or people/labour — we’ll able to retain, and what we’ve need to yield to;

We don’t know what sort of outcome the parliamentary debate on the second EU Referendum is going to take;

• We don’t know who on the UK side, other than a handful of key civil servants, and a few Home Office bureaucrats, will be in the working party to negotiate on behalf of the UK.

Suffice to say, there are many imponderables; many people are confused and flummoxed as to what happens next. This doesn’t mean that FinTechs shouldn’t be actively positioning themselves and thinking of what they can do to minimise the impact of Brexit on their pan European business.

These are the key things that UK FinTechs should be currently planning for:

People

Given the new PM’s stance on immigration, and that immigration has been one of the key tenets of the Leave campaign, it’s highly possible that this is one of the first rights negotiated after Article 50 is issued.

It’s also possible therefore that immigration restrictions could come into effect before the two year negotiation period is over. This will affect your staff. You need to think about your team, the state of influx this might cause them personally, and their morale at work and in their careers in these uncertain times.

Issues:

• Almost all UK FinTechs have non UK employees. If the right of free movement of people is removed or diminished, this could have a significant impact on recruiting, talent acquisitions and the retention of existing staff;
• Internally within your FinTech, you will also probably face questions, low morale and tons of questions;
• There could be the possibility that non-UK staff have to get work permits and visas to continue to working here;

Travelling to the UK could also become a hassle and overly onerous.

Recommendations:

• Firms should be assessing the immigration of all their non-UK staff;
• Identify the scale of impact; quantify the number of people that this would affect;
• Identify the costs that this would be associated with obtaining work permits that you currently obtain for your non-EU staff (for example, if you sponsor an engineer from the USA);
• Engage a good immigration and employment lawyer!

• Have an internal comms plan; state your firm’s stance and your commitment to non-EU staff being valued and key to the success of your FinTech; embrace the change but have a thought through plan that resonates with you as a leader and your company values.

Goods and Services

There are a plethora of issues under the goods and services buckets that UK Fintech have to take into account.

Issues:

Passporting

• UK FinTechs passporting into the EEA may need to find a second alternative authorisation to continue offering services to their non-UK customers.

Safeguarding of Assets

• If a regulated UK FinTech holds client funds in a non UK financial institution, that firm may have to change those arrangements and ensure that UK client assets are safeguarded in a UK financial institution;
• The number of UK financial institutions offering dual safeguarding options — ie they are regulated in the UK and also have EU authorisation rights — could be minimal.

Data Protection

• If the UK isn’t able to retain some common market privileges for financial services, the UK will be classified as a “third country”;

A data transfer agreement incorporating the European Commission’s model clauses could be needed.

• There is going to be a plethora of data protection initiatives and suggestions being voiced; it will be difficult to separate the wood from the trees;

• This means that personal data can only be exported by a business established in the EU to a third country if there is an ‘adequate level of protection’ for such data, or applicable binding corporate rules.

Recommendations:

Passporting

• Firms should evaluate how this will impact their operations;
• Evaluate which alternative jurisdiction they can get regulated in;
• Design and implement contingency plans to accommodate peculiarities for those jurisdictions;
• Evaluate the costs;
• Critically align time frames; if need be start your licensing process now and don’t wait for negotiations to start, or Article 50 to be issued;

• Engage competent financial services counsels — in house or externally; Engage lobby groups or FinTech associations like the eMA or UK Cards or UK Payments to advocate on your behalf.

Safeguarding of Assets

• Authorised UK FinTechs should assess their current banking safeguarding options;
• Consider what alternative strategies could be implement;
• Evaluate the costs;
• Identify institutions that could offer dual banking facilities; engage in discussions with those;
• Keep an eye on your current bank’s strategy as Brexit negotiations continue;
• Look out for opportunities to offer your clients additional services as they are affected by their own bank’s limitations. This could be an opportune time to develop new products or enhance existing ones, to help your customers.

Data Protection

• Review UK-EU data flows;
• Evaluate terms of service and amend with model clauses; assess practical impacts of consent regime;
• Evaluate and amend Privacy Policies;
• If your business is in expansion mode and there is an anticipation of exponential client growth, consider hiring a privacy officer to deal with privacy and data specifics.

Capital

There are already reports of VC funding being reduced over the last quarter.

And this was before Brexit! Funding is only going to get more scant in the face of these uncertainties. The pound has hit 31 year lows. Investors are going to be hesitant to provide funding and may only make investment decisions where more is known geo-politically.

Most UK FinTechs will have to bear this one out. If you’re dependent on VC funding for growth and expansion, the best you could do is continue to assure your investors that you have a solid infrastructure, a good team, and a great product; the premise upon which Investors put money into your companies in the first place.

One can hope that VCs and Investors themselves approach the Government negotiators themselves. They need to position themselves as economic enhancing and good for the FinTech community. London has long being touted as the FinTech capital of the world — the government and Investors will need to put their money where their mouth is so to speak — VCs and Investors will have to drive the capital incentive, tax beneficial argument so as to continue to support the vibrant FinTech community in London.

Finally a note about your customers. As you, an expanding FinTech is going through radical changes, think about your customers.

Consumer confidence has plummeted.

Your customers are nervous, scared and confused. You need to reassure them and you need to do this consistently and honestly. At this stage, more communication and contact with your customers is good. Consider:

• Frequent email updates on the state of their accounts;
• Direct communication — email, a video, face to face meetings — from senior staff — CEO / COO / CIO / CTO — on the state of the company, the product, next steps;
• A live public company update on YouTube or Facebook Live;
• A Twitter Q&A session.

These are uncertain times for UK FinTechs and the country as a whole. There is more of what we don’t know, than what we do. But preparedness is key to success here. As much as we didn’t anticipate this result, and bemoan the fate that we are in, it’s time to dust off the whining and activate, Plan B.