London has a lot to offer to financial technology firms despite the uncertainties hanging over Brexit negotiations, the economic secretary of the UK Treasury told CNBC on Wednesday.
Simon Kirby, who is in Singapore to attend a fintech festival, said the UK’s geographical location made it possible to conduct business with Asia in the morning and the United States in the afternoon. Its independent legal system and a fair and effective regulatory system made London stand out as the leading fintech hub in the world, he added.
“(London) is also one of the world’s biggest financial centers,” the official said. “If you are interested in financial services technology, then being close to capital markets is key.”
Since the U.K. voted in June to exit the European Union (EU), concerns have hung over London’s long-term status as one of the world’s leading fintech hubs. A report from consultancy EY, commissioned by the U.K. Treasury, published in March said in 2015, UK’s fintech sector generated 6.6 billion pounds ($8.22 billion) in revenue and employed 61,000 people.
Prior to the referendum, lawyers, venture capitalists and start-ups had told CNBC the city’s status as a fintech hub could be under threatif the UK voted to leave the EU. Technology companies have benefited from the free movement of labor and the ability to do business within the trading bloc – this is known as “passporting.”
“We are listening very carefully to fintech businesses’ concerns about access to capital, access to high-skilled labor and also their concerns about Brexit,” Kirby said. He was confident the UK would get a good deal from its Brexit negotiations and reiterated that it was open for business.
Investors appear unconvinced. In October, a fintech non-profit industry group, Innovate Finance, reported that venture capital funding for UK technology companies fell 33 percent on-year in the first half of 2016 to $386 million. In contrast, global funding rose from $5.32 billion to $13.18 billion. The industry group urged the government to negotiate access for UK financial services sector companies into the EU single market by maintaining the current passporting rights.
Kirby acknowledged that access to capital was an issue. Last month, the UK Treasury announced London would hold a fintech conference in April 2017 to attract investors into the UK’s fintech sector.
The government, along with regulators and the Bank of England, has already implemented initiatives to help fintech businesses grow in the UK. The Financial Conduct Authority, for example, has set up a regulatory “sandbox” where companies could test their products with customers in a safe environment.
Kirby added that building relationships with other fintech hubs was also crucial, despite industry concerns of a possible brain drain from the UK to hubs like Singapore and Hong Kong.
“It’s fair to say competition is good. What businesses want is more of a parity between regulation so that they can move easily from one country to another… (and access to) customers.”