Is the loss of the banking “passport” the biggest risk posed by Brexit to financial companies in the UK? Not according to Paolo Galvani, founder and CEO of fintech startup MoneyFarm. As the UK prepares to leave the EU, there is much more at stake than the opportunity to operate with the same license across European countries. In his views, the access to a unique talent pool and the system of entrepreneurship built around London’s financial centre have a larger impact on the way fintech companies operate than the banking passport. It is not a surprise that in a survey by Synechron, almost three-quarters (72%) of British bankers said that in five years London will still be the financial capital of Europe.
The story of MoneyFarm is emblematic of the situation fintech startups face as a result of the EU referendum. The digital wealth management firm was founded in Italy in 2011 and established in the UK in 2014. “We currently employ some 60 staff, 35 in London and the rest in Milan and Cagliari,” says Galvani. “We could have worked in the UK with the authorisation of the Bank of Italy but we wanted to expand, so we applied for a broader license from the UK’s Financial Conduct Authority (FCA) and we returned the Italian one.”
How does the bank’s passport work for you?
In Europe there is an agreement among supervisory bodies so that a financial entity licensed in a country of the European Economic Area can “passport” its authorisation in the other EEA countries. The authorisation by the FCA, the British regulatory authority, serves therefore across the European Union.
How damaging could the loss of the passport be for your company?
We could continue working in the UK with the current authorisation and apply for another one in the EU. It is a pain, but we have done it before and we can do it again. What really worries me is free movement of people. The team is not built on the basis of nationality but of competencies. Among the 35 staff we employ in the UK, there is a variety of talent, experiences and cultures. This is the greatest strength of London and England is privileged to attract people of such calibre. Constraints on the nationality of staff would be a real problem for us and for highly skilled professionals it will be quite easy to look and find opportunities elsewhere.
When you decided to expand, why did you choose London?
In London there has been a unique effort to forge an ecosystem where fintech startups can flourish. Re-creating this environment elsewhere will be extremely difficult. First, there is venture capital, a network of stakeholders and interactions linked to the City with an active interest in fintech. Second, the regulatory body – the FCA – has promoted innovation taking a less traditional approach than in other countries. Third, the government has put in place fiscal schemes and incentives that appeal shareholders. Fourth, these conditions attract highly qualified staff in both finance and technology. Finally, people with these skills find in London the metropolitan environment, with the schools, services and lifestyle matching their needs. All these elements make the ecosystem very difficult to replicate elsewhere, at least in the short time. But Brexit is giving others the opportunity to put it in question. We will see the moves other EU countries will make in this regard.
Several cities in Europe are regularly cited as potential alternatives to London. Frankfurt, Berlin, Paris, Dublin and Madrid are among them. Which one is more likely to become the new financial capital of Europe?
All alternatives to London today have some strengths, but also great weaknesses. None of them has an ecosystem as complete as London. France has tax and labour laws that do not incentivise small companies. Berlin has been successful in attracting ecommerce startups but has not been able to do the same for fintech. Luxembourg and Ireland have the talent but lack part of the interactions and flows. Today there isn’t a clear alternative winner and this is London’s greatest advantage.
Synechron, a digital consultancy, has recently surveyed 80 financial services executives and found that 55% have set up Brexit Steering Committees to prepare for life outside the EU. 56% of them also believe that compliance costs will increase for the sector, not one person expects regulatory costs to decrease. How does this affect you?
It is true that there will be compliance costs. Losing the passport, for example, would mean applying for a new authorisation in another country and this may take between 4 months and a year. It is hard to imagine now how the situation will evolve in the context of Brexit. It is clear, however, that England is putting into question one of its great assets. We will have to see how the ecosystem will respond to the challenge.
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