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After Brexit, freedom to set own rules in fintech, crypto could benefit UK


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After Brexit, freedom to set own rules in fintech, crypto could benefit UK

Brexit has created disruption and uncertainty for the U.K.'s fintech sector, but industry insiders say that there is a silver lining. The U.K.'s departure from the bloc leaves it free to forge its own regulatory path in fintech and cryptocurrency.

Not only could this spur innovation, it could help the U.K. to reinvent itself as a hub for crypto and decentralized finance, or DeFi.

These comments come shortly after the U.K. regulator opened a consultation on cryptoasset regulation, with a focus on stablecoins, which will run until March 31. The U.K. is also in the midst of a government-backed fintech review, launched in July 2020, which will make recommendations for how best Britain can nurture its fintech industry following Brexit.

The U.K. formally left the EU at 11 p.m. London time Dec. 31, 2020. Although British Prime Minister Boris Johnson clinched a deal with the bloc Dec. 24, 2020, the ability of U.K.-based financial services firms to do business on the continent still hangs in the balance, since the EU has yet to agree on equivalence of financial regulation.

The Financial Conduct Authority, the U.K. regulator, has allowed EU financial services companies — including those in the payments space — to continue to trade in the U.K. under a temporary permissions regime, but this has not been reciprocated by the EU or any of its member states.

Silver linings

But CEOs in the U.K. crypto and DeFi space believe that Brexit could mark a new beginning for their industry.

"Now that we've avoided a no-deal Brexit, it sends a strong message to the rest of Europe that we want to do things our way and continue to lead the space as a leading financial and technology services hub. There's already a huge amount of fintech innovation in the country, and I hope that this will allow us to continue to compete with the rest of the world in this area," said Pavel Matveev, CEO of Wirex Ltd., a fintech that provides cryptocurrency wallets linked to Visa Inc. and Mastercard Inc. debit cards.

The U.K. fintech sector is worth around £7 billion a year to the economy and employs around 60,000 people, according to government data.

London's fintech industry attracted $3.6 billion in venture capital between January and September 2020 across 169 deals, second only to San Francisco, where fintechs bagged $5.1 billion in funding across 107 deals, according to data from

Global cryptocurrency market capitalization passed the $1 trillion mark for the first time in January, according to CoinGecko, a cryptocurrency data aggregator.

Stani Kulechov, founder and CEO of London-based fintech Aave, which focuses on infrastructure for DeFi, also sees positive aspects to Brexit.

"While Brexit brings considerable uncertainty to the U.K. financial industry, such uncertainty is nothing new for the crypto and DeFi space. Brexit can also be an opportunity for the fintech community and policymakers to create further innovation-friendly policies and lead in DeFi and digital assets as well," he said.

Sean Kiernan, founder and CEO of Greengage, a fintech providing merchant banking solutions to small and medium-sized businesses, particularly in the crypto space, believes that the FCA could be more nimble in its approach to crypto after leaving the EU.

The EU issued its directive on Markets in Crypto-assets, or MiCA, in September 2020, which states that all companies in the bloc issuing crypto or providing crypto-related services — such as custodian services or trading — will ultimately have to be regulated, although this is still at the proposal stage and has yet to go through the EU legislative process. Industry watchers say full implementation could take somewhere between two and four years.

For Kiernan, a lot can change in the fast-moving world of crypto on that kind of timescale. Now that it is free to make decisions independently, the FCA could be "more responsive" in its approach to crypto than it would have been within the EU.

Access conundrum

For Simon Briskman, partner at law firm Fieldfisher, Brexit could leave the U.K. freer to innovate and to position itself as a global fintech center, but with the caveat that it will need to tread a fine line between achieving these aims and maintaining access to EU markets.

He said: "Brexit presents the possibility of a twin-track regulatory regime allowing new entrants from outside of Europe and U.K. start-ups some leeway on the heavy regulatory responsibility that financial companies face.

"The FCA has been leaning this way for years in its mandate to encourage innovation and may now be able to act further. Using the U.K. as a springboard before taking on the heavier regulation the EU imposes may well attract fintech and crypto investment in the U.K."

The FCA has an existing reputation as one of the world's more progressive regulators in terms of fintech, and its sandbox initiative — a testing program for early-stage fintechs — launched in 2016, is a model that has been copied by numerous other countries.

Jack Wilson, head of policy and regulatory affairs at TrueLayer Ltd., a London-based firm that provides other financial institutions with the technology for Open Banking, said there is no getting away from the fact that Brexit makes life more difficult for fintechs doing business on the continent.

"Brexit is a challenge facing all U.K.-based firms who want to continue providing regulated services into the EU," he said.

TrueLayer is seeking authorization from the Bank of Ireland to allow it to continue to provide services in the EU. Until then it has partnered with German fintech Fino run GmbH to ensure continuity of service.

Other U.K.-based fintechs have followed a similar approach of setting up a base in an EU country to continue serving clients on the continent, such as banking-as-a-service provider Railsbank Technology Ltd., which established an office in Lithuania in 2018.