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UK builds bridges beyond Europe through 'fintech diplomacy'

The British government is promoting the country's financial technology in Asian markets in a bid to establish it as a global leader in the industry.

The U.K.'s impending departure from the EU places more importance on markets beyond the continent, while higher rates of economic growth in Asia and beyond make these regions attractive for British fintech. The country's fintech community has welcomed the government's efforts, saying that a helping hand has been invaluable in difficult-to-crack markets such as China and India.

Adam Afriyie, Conservative MP and chair of the all-party parliamentary group on fintech, evoked Britain's colonial history — with a caveat — by saying at a House of Commons event in October 2018 that the country should aspire to "a more gentle empire, based on fintech and consent."The need to establish British influence outside the EU is a recurring theme among policymakers, with U.K. secretary for international trade Liam Fox declaring in April 2018 that Brexit presented an opportunity to "reinvigorate" ties with Commonwealth countries.

"The increased focus by U.K. fintechs on markets beyond the EU reflects the global nature of fintech. This industry is inherently nonregional and it is no surprise that British fintechs are looking to the rapidly rising economies of Africa and Asia for future growth," Afriyie told S&P Global Market Intelligence in a separate email.

Global 'gold standard'

Afriyie said the U.K. had an opportunity to establish itself as the international "gold standard" of fintech regulation, since other countries are already following its lead.

The U.K. Financial Conduct Authority was among the first regulators in the world to establish a fintech "sandbox," a supervised environment in which early-stage fintech companies can develop with support from the regulator. After the U.K. sandbox launched in mid-2016, Hong Kong and Australia followed suit later in the year.

"As we leave the EU we must be mindful of EU regulations whilst taking the opportunity to build on existing regulations and continue to develop and enhance standards in the sector," Afriyie said.

The U.K. government has a number of bilateral agreements with markets in Asia-Pacific and North America, dubbed fintech bridges. These have three separate strands of cooperation: Government-to-government, business-to-business and regulator-to-regulator.

Separately, the FCA has agreements with its counterparts in Asia, North America and Australia, which mainly function as a referral mechanism for U.K. fintech businesses trying to enter these countries, and vice versa. The British regulator also has cooperation agreements agreements with the Chinese and South Korean regulators that focus on information sharing.

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Benefits of 'government badge'

While the concept of fintech bridges existed before the June 2016 Brexit vote, members of the U.K. fintech community say government assistance to promote innovative British companies in Asia is especially welcome while the future relationship with the EU remains uncertain.

"The concept of fintech bridges pre-dates Brexit, but it's fair to say that these connections are going to be a lot more important after we leave the EU," said Mark Walker, CEO of Element_ICO, a cryptocurrency startup, and head of international relations at The Fintech Power 50, a guide to influential fintech companies in the U.K.

Jon Vollemaere, CEO of R5FX Ltd., said that in the context of Brexit, it was reassuring to know that the U.K. government was on hand to open doors in more far-flung markets.

"There is now a lot of support for U.K. fintech companies around the world, in a way that there wasn't three years or so ago," he said during a panel discussion at the Fintech Bridge U.K.-China conference in London on Dec. 11, 2018.

"The opportunity for fintechs in China is huge, but it can be a tricky place to do business. Having a 'government badge' can be extremely helpful," he said.

R5FX is a fintech that specializes in the trading of emerging market currencies, including the Chinese yuan. It has offices in London and Singapore.

Global financial hub

Separately from fintech bridges, the City of London Corp. sent a delegation to India in October to boost fintech links. Outgoing Lord Mayor of London Charles Bowman was accompanied on his trip to meet senior government and industry leaders in Mumbai and Delhi by 10 fintech companies, including R5FX, insurtech company Wrisk Ltd. and Onfido Ltd., which offers identity verification software and automated background checks.

"The UK has been the top G-20 investor in India over the last 10 years, and last year bilateral trade hit around £18 billion, up 16% on the year before. Financial services accounts for a small but growing proportion of this — £350 million — and there is plenty of room to grow our relationship in this area, particularly in fintech," Bowman, who finished his term in November 2018, said in an email.

The U.K. and India already have a bilateral agreement as of April 2018, the U.K.-India Tech Partnership, which encompasses fintech, Bowman said."London acts as a global financial center and the deep pool of capital that London represents is invaluable in facilitating investment for growth and prosperity. We are a global financial hub that will continue to serve the U.K., Europe and the world after Brexit," he said.

A spokesperson for Wrisk said expansion into India had always been on the cards regardless of Brexit, but traveling to India with the lord mayor's delegation had "catapulted" its brand in the local market and helped players in the local fintech scene to understand their business.