How the UK could become the early stage Fintech capital of the world post Brexit thanks to Securities Tokens


This week is Brexit week. Personal disclosure: I think Remain was the right option. However, as a business person I know that you have to work with whatever actually happens, rather than what you hope will happen and that you look for opportunities in problems that the world delivers to you.

At Daily Fintech we look at world events through the narrow lens of “is it good or bad for Fintech?”

So, here amidst the doom & gloom, is my optimistic case for Fintech post Brexit.

I specifically wrote early stage Fintech capital of the world. The tremendous tax incentives in the UK for investing in startups via Seed Enterprise Investment Scheme (SEIS), is a big driver for early stage. Other places may have bigger pools of capital for doing later stage deals (Silicon Valley is dominant there) but in few places are the incentives as good for early stage – and ventures have to go through early stage to get to late stage (said Captain Obvious).

SEIS offers unparalleled incentives for high income people to invest in startups. Even if a venture fails they get a lot of tax back immediately. On exit, they get zero capital gains tax, after 3 years minimum holding.

SEIS has been around a while. So has Fintech. What is new is the emergence of legal Securities Tokens. Look at these from the perspective of that early stage investor. The investment is priced by the market and can be traded (if Securities Token exchanges get their act together with some reasonable liquidity/spreads). Perhaps more important is it becomes harder for big Funds to come in at the next round on terms that disadvantage you as an early investor (not impossible, just harder).

For the entrepreneur/capital raiser, the fact that SEIS offers zero capital gains tax after 3 years minimum holding puts a de facto lock-up into the terms (because any investor selling before 3 years loses this tax advantage).

If the UK is the place where investors can go from angel/seed to exit within 3 years, the UK is where the best entrepreneurs will want to be – and where the best entrepreneurs want to be will be where jobs and prosperity is created.

What about access to Europe? Entrepreneurs can choose jurisdictional locations and strategies that give access to investors in different locations around the world. Many ventures today are decentralised with people in multiple locations. Consider Ethereum as an example (with developers and other employees all over the world. Talent can choose where they want to live; entrepreneurs and investors follow talent.

What about all those Banks relocating out of London due to Brexit? For those losing jobs and those who depend on them, it is 100% bad news. For Fintechs looking for talent and users it is good news.  Many of the jobs will be automated anyway and an HR policy of “relocate due to Brexit” simply avoids having to fire people due to automation.

So, London could become the early stage Fintech capital of the world post Brexit thanks to Securities Tokens.  There are lots of policy, regulatory, legal and technical issues to make this happen, but nothing that is rocket science. 

The real issue is London as a diverse, fun talent magnet. The passporting/regulatory issues are far more manageable. If Brexit means entrepreneurs cannot recruit talent from around the world regardless of country of origin, religion, colour, sexual orientation, then all bets are off.

The solution is simple. Every startup given SEIS status should have the right to offer work/residency permits to whoever they want, from anywhere, no questions asked.

It is a real opportunity, but we should never underestimate the ability of politicians to snatch defeat from the jaws of victory. 

What are you seeing? How will this play out? Please go to this thread on Fintech Genome to comment.

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Bernard Lunn is a Fintech deal-maker, investor, entrepreneur and advisor. He is CEO of Daily Fintech and author of The Blockchain Economy.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

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The No-deal Brexit Shock and Fintech, who is the winner?

“Its going to be a No-deal Brexit.”

“No-deal could be damage control”

“May might have left it too late.”

“It could be a managed explosion”

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And the headlines keep coming. There is some serious soul searching that the country and its leaders need to do after/if this saga comes to an end. An interesting article in The Guardian articulates with pictures, the catastrophe that is waiting to happen if a deal wasn’t reached.

While the nation’s and the region’s future, along with the livelihoods of people are at stake, today we focus on what it means to Fintech.

There was a time, not too long ago, when I felt that pragmatism would prevail through the Brexit deal making process. If that had indeed happened, London could have very well maintained its lead as the Global Fintech Hub. Yet again, mankind has proven to be less rational than I hoped.

I felt there were several factors that helped the City of London maintain its lead in Fintech.

  • A matured and a fundamentally strong Financial Services industry
  • A strong in-flow of skills from UK and Europe
  • The English language
  • Time Zone
  • A innovation friendly regulatory regime, thanks to the FCA

With the Brexit plans in motion, there was a stress test exercise conducted across UK’s high street banks and the scenario involved key three risk factors,

  1. 4.7% decline in UK GDP,
  2. 33% fall in house prices and
  3. 27% decline in the value of pound sterling

No surprises there, banks passed the stress tests. So the incumbents are prepared. However, as a precautionary measure many high street banks, asset managers and Fintechs have set up shop in Ireland. Thanks to Brexit, Ireland now has over 400 Financial Services firms, and over 100 firms queued up for regulatory approvals to use Ireland as their location to passport services to Europe.

Just looking at the above factors, Ireland shares many of the regional and language benefits that London benefits from. And with an attractive corporation tax of 12.5%, its going to be challenging UK’s might in attracting top Fintech entrepreneurs.

All the above factors are working in Ireland’s favour and it has most of the key ingredients to attract Fintechs if a No-Deal Brexit happened. Top FS players setting shop, a conducive environment for entrepreneurs, regional and language advantage.

The UK’s FCA is clearly struggling to cope with the uncertainties that the political landscape is throwing at them, there is a lack of clarity on how several regulatory aspects will be treated post Brexit – with a deal or no-deal.

From payments to passporting, from transaction reporting to fund management, the regulatory guideline is

KEEP CALM AND CARRY ON, and stay tuned for more updates.

With the EU and UK fighting hard, and with the uncertainty this has caused in the business landscape, Ireland may well be the winner, when it comes to Fintech.

Arunkumar Krishnakumar is a Venture Capital investor at Green Shores Capital focusing on Inclusion and a podcast host.

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