Banking’s disrupters face upheaval of their own in Brexit vote

Bloomberg

Entrepreneurs who’ve flocked to London in recent years to upend the financial world with technology are dreading one potential disruption they can’t control: Britain leaving the European Union.
A decision to quit the 28-nation bloc in Thursday’s referendum would threaten trade and regulatory benefits that have made London a hub for financial startups, as well as a center for global banking. Polls show the outcome is too close to call.
“The people we deal with are petrified about Brexit,” said Mike Laven, chief executive officer of Currencycloud Ltd., a London-based firm that processes cross-border payments.
Finance-focused startups are a bright spot for the UK’s technology scene, making launch parties at the top of the Gherkin in the City or pizza-fueled conferences at Level 39, the tech accelerator in the heart of Canary Wharf, regular events. The so-called fintech industry has benefited from fast-track regulation and EU immigration rules that have lured legions of young European code writers to London from elsewhere on the continent. Investment in the British firms soared 53 percent to 660 million pounds (US$974 million) last year, topping any other European nation, according to Accenture Plc. At least two London-based fintech companies —Funding Circle Ltd. and TransferWise Ltd. — have been valued at more than US$1 billion. Young firms have attracted investments from Barclays Plc, Banco Santander SA’s UK unit and other British commercial banks. Last Friday, Bank of England Governor Mark Carney announced the 322-year-old institution was launching an accelerator to work with fintech startups.
This promising story could have an unhappy ending if Britain opts out of the EU. Today, companies can save money and time by getting licensed in one EU nation and selling their products across the bloc, an arrangement known as “passporting.” Many companies set up shop in the UK because of its speedy licensing compared with other EU countries. If the UK leaves, a firm such as Currencycloud could lose the passporting privilege, and have to submit applications in every nation where it wants to operate, a costly chore.
Separating from Europe would be “catastrophic” for the fintech industry, resulting in a loss of $5 billion in investment over the next five years and prompting companies to leave for the US or other European countries, according to a report Tuesday from research firm William Garrity Associates.
Diminished Role
“Following Brexit, fintech startups may realize it makes more sense to set up an office within the EU, and existing companies may relocate some of their staff to the EU,” said Jan Hammer, a partner at Index Ventures in London, a venture capital firm that has invested in the sector.