By Craig James, CEO of Neopay
The UK’s financial sector is more respected than any other, with the City of London in particular acting as a magnet for investment and industry talent.
Most recently the capital has been a hotbed of innovation in the financial technology – fintech – sector, with a number of start-up accelerators and challenger companies coming onto the scene to take on the established industry.
We stand on the brink of an era of change as the government enters into Brexit negotiations, with a key question remaining,whether London’s position as a leading financial centre and the focal point of the EU’s fintech industry may be under threat.?
Other EU countries are beginning to respond to this and attempting to entice fintech businesses away from London and the UK.
As a result, the British government and its financial regulator appear to be doing more than ever to boost the UK’s share of the fintech market.
This is definitely a good time for fintech businesses, as governments across the world compete for their business, and this is even more apparent in Europe and the UK as a result of Brexit.
In one of its latest initiatives, the British government are looking specifically beyond the borders of London to help boost fintech hubs in the rest of the UK and encourage greater development of fintech across the country.
Boosting Brexit Britain’s fintech competitiveness
The global fintech market is one of the fastest growing sectors in the world, with EU figures reporting that the value of investment into the sector reached $22.3bn by the end of 2015, a 75% increase on the year before.
Since 2010, large corporates, venture capitalists and private equity firms have invested in excess of $50bn into nearly 2,500 global start-ups.
In the UK, the fintech sector – enveloping everything from online lending to applying blockchain to capital markets – is worth about £7bn to the economy, while more than 60,000 people are employed in the sector.
Looking at the UK’s global positioning, the country is second only to the United States in prominence on the top 100 fintech list, compiled by KPMG.
But while many of the UK companies on the list are London based, the highest based company, and the only UK business to breach the top 10, is Durham based outside London.
The fact that a non-London business is the country’s highest valued fintech business is significant, and an area which must be developed upon if we are to continue to convince new businesses to set up in the UK.
This is particularly important as other EU countries are attempting to take advantage of the confusion surrounding Brexit and boost their share of the fintech market.
A new public-private partnership, “House of Fintech” was recently set up in Luxembourg to attract companies to set up in the country, while French lobbyists have been making efforts to entice fintech businesses to relocate from the UK to Paris.
Even outside of the EU, steps are being taken to replicate the innovation and success being seen in the UK and The Monetary Authority of Singapore has moved to copy British schemes to improve the prospects of its own fintech industry.
Expanding access to regulation beyond London
The Financial Conduct Authority (FCA), the conduct regulator for the UK, has recently announced that it is going to take a more pro-active stance in expanding its regulatory support across the country, in order to aid emerging financial technology hubs based outside of London.
Historically, fintech businesses have predominantly come from London due to its proximity to regulatory bodies such as the FCA, tech funding and the majority of major financial institutions.
Looking around the global fintech market, these four factors have been key in the success of fintech companies.
With this in mind, the FCA will be looking to continue this trend, looking primarily to areas with both a strong financial centre and technology presence.
Speaking to the Leeds Digital Festival earlier this year Christopher Woolard, executive director of strategy and competition at the FCA, identified emerging hubs in the Edinburgh-Glasgow corridor and the Trans-Pennine Leeds-Manchester area as significant areas for potential growth.
Examples of successful fintech initiatives within those areas include the developing “FiNexus Lab” in Leeds – a collaboration between local government, industry, and central government – which is laying solid foundations for fintech firms to flourish in the city, while in Manchester, Barclays’ “Rise” hub and “The Vault”, a 20,000 sq ft co-working space for fintech firms in Spinningfield’s business quarter, is improving the conditions for innovative companies to collaborate and grow.
Devolution of government, the rise of non-London tech hubs and the increasing willingness of banks to have a presence in other major cities around the UK, means greater potential is there for those fintech businesses who choose to locate outside London. This is of particular significance at the time the country, now more than ever, needs to solidify and expand its position in the world’s financial and technology markets.
The FCA has also been seeking to assist up and coming fintech businesses through its “sandbox” scheme, which helps firms to experiment with products, services and business models.
Around two thirds of the scheme’s first participants were London based, but the initiative has also seen a recent surge of wider regional interest, with almost half the applications for its latest round coming from outside the capital, highlighting the growth of fintech across the UK.
Non-London fintech companies are also seeing an increased interest in investment, with leading business, Atom Bank, recently securing £83m of funding from investors including Spanish bank BBVA, fund manager Neil Woodford and Toscafund Asset Management.
An idea a long time coming
While encouraging new fintech companies outside of London has just recently become a focus of the FCA, the concept has actually been in the pipeline as far back as 2014. Politicians, as well as a number of prolific financial and technology bosses, expressed the view that for the burgeoning fintech sector to fully realise its potential, the sector needs to look beyond the boundaries of the capital – with these opinions being put forth long before the possibility of Brexit became a reality.
For instance, Eric van der Kleij, head of Canary Wharf based start-up accelerator Level39, has been one of the leading fintech figures suggesting that the success of the business isn’t tied to its location, highlighting Manchester as a particularly strong example of an area where fintech companies were performing strongly.
One of the major hurdles, and a barrier the FCA is now seeking to breach with its latest commitment, is that much of the regulatory framework came from London, with businesses based outside of this area – particularly those further towards the north and Scotland – struggling to get access to the kind of support they require.
Speaking at the Leeds Festival, Christopher Woolard said the FCA now wanted to make it “as easy as possible” for firms to engage with the regulator and get access to the advice and help they needed to gain a foothold in the sector.
While many businesses have been able to set up outside of London and travel, sometimes great distances, to access this regulatory assistance, actively moving this help closer to businesses could be a significant benefit to new enterprises, saving them invaluable time and resources which could be better spent elsewhere.
One thing, however, remains clear.
With the UK’s future position in the single market still not fully known, and not likely to be defined for another year at least, the UK government knows it needs to maintain its popularity for fintech businesses. These businesses need to be given an even greater chance to succeed if the UK is to maintain its strong position during the Brexit negotiations and fend off the competition.
We can expect to see further new initiatives from the UK aimed at making that a reality and more positive developments for fintech as European countries compete for their business.
Seven lessons from 2020
Rebeca Ehrnrooth, Equilibrium Capital and CEMS Alumni Association President
Attending a New Year’s luncheon on 31 December 2019, we played a game that involved predicting the world in 2020. Some of the questions included: would Uber become profitable? Would the three-decade bond rally finally come to an end? Would the US hit a recession?
Unlike any of our predictions based on a traditional approach to business and predicting, we now know that 2020 became the year where business, professional and personal plans were turned upside down, reshaped and put-on hold. The proverbial black swan had arrived.
As revealed in a new CEMS Guide to Leadership in a Post-COVID-19 World, to which I contributed, the COVID-19 pandemic has exposed deficiencies in the 20th Century vision of leadership, giving a rare opportunity to question the status quo.
So, what are the main lessons from 2020?
- Humans are enormously adaptive. This is not an extinction scenario. The world is getting used to dealing with global human disaster which may become a recurring event. Life continues guided by new parameters.
- No sector or country is immune to rapid change. Just as the leveraged finance and equity markets ground to a halt during the Global Financial Crisis, we have seen a disruption in the financial markets (including M&A) in 2020, including a significant redistribution of wealth between sectors; think tech vs airlines and the hospitality industry. When a market is disrupted it has secondary and tertiary effects such as less work for accountants, lawyers, financiers etc.
- Location is not as important anymore. The belief that finance staff need to be based in one of the financial capitals to be effective has been forever altered. Pursuing a career in finance from anywhere is becoming possible. However, it’s likely that over time, financial controls and human interaction will move the work model back towards the traditional office approach, as work is a critical sanctuary for people. While working from home may allow more time for family, chores and sports, it is mainly effective for people who already have their internal and external networks. For junior employees it presents a notable challenge as they may be forced to spend their formative years without a chance to really build their networks.
- Change is likely to be lasting. The opportunity for alternative finance and tech focused providers is enormous and 2020 will accelerate this shift. For example, many retail banks are providing rather poor customer service, blaming the pandemic. Even the most loyal customers will be heading elsewhere. For recent graduates and current students this is a major shift; future winners and key employers may not be names we are used to seeing in the headlines.
- There will be a spotlight on leaders with visionary strategy and understanding of the operations. 2020 showed many politicians and business leaders behaving like they were playing a game of snakes and ladders, rather than executing a thought-out strategy. The next wave of thoughtful leadership is urgently required.
- Collaboration leads to success. The definition of a pandemic is an infectious disease prevalent worldwide. A global problem requires a collaborative solution rather than each country and industry on their own. Quoting Steven Riley, professor of infectious disease dynamics at Imperial College London: “Once you have the knowledge and you share the knowledge, then you are able to take measures to push transmission much lower”. This principle is transferable to management education. In a world more complex than ever, investing in a degree is hard currency. Combined with the full global alumni network, corporate partners and schools, CEMS is capital that doesn’t depreciate.
- Resilience has become a watch word. Saint-Exupéry’s quote resonates with me: “If you want to build a ship, don’t drum up people to collect wood and don’t assign them tasks and work, but rather teach them to long for the endless immensity of the sea.” We are in a new paradigm – so prepare for the next change. For COVID-19, while we hope that the vaccine will soon upon us, the broader long-term positive challenge remains.
Data after Brexit: How does the end of the transition affect GDPR?
By John Flynn, Principal Security Consultant at Conosco
The UK has officially left the European Union now that the transition period has ended on January 1st 2021. But this could raise issues with one of the biggest bugbears for many companies – the international transfer of personal data.
Businesses can relax, somewhat – GDPR, which took businesses months to get their heads around, is not being replaced. It will continue as the UK GDPR 2018, and will still be based on the criteria of the Data Protection Act of 2018. However, the UK will retain the right to change the UK GDPR as it sees fit in the future.
The main changes apply to those who receive data coming into the UK from Europe. Transfers from the UK to other countries can continue under existing arrangements.
We know it can be difficult to cut through the legal jargon, so we have simplified what you need to know to protect yourself and your data:
1 – Update your privacy notice
Most businesses do not have the correct clauses in place ahead of January 1st, potentially exposing their liability, should something happen to their data. All company privacy notices online will need to be updated to specifically state ‘UK GDPR’, as opposed to ‘EU GDPR’. You will also need standard contractual clauses in place, which cover both parties – those transferring and those receiving the data.
The Information Commissioner’s Office (ICO) has a list of what needs to be included in the standard contractual clause here. The ICO will remain the UK regulator for data protection, regularly liaising with each EU member state.
This also applies to Multi Corporate Groups who operate in multiple countries, who need to update their documentation and privacy notice to expressly cover the data transfers. The UK has applied for an adequacy assessment, which would negate the need for contractual clauses, however this has not yet been approved by the EU.
2 – Data privacy assessments
Any company which runs applications and software should always perform a Data Privacy Impact Assessment. This was also in the guidelines before, but these assessments are now more important for those who outsource their IT operations internationally.
For example, when using a service such as a cloud-based system, the company must be sure that its service provider adheres to UK GDPR and stores the data within the European Economic Area (EEA), or has a binding corporate agreement with the company, where data is stored outside of the EEA. You should also, as mentioned above, make sure that a contractual clause is in place.
3 – Review local legislation
Contracts should now have contractual clauses that specify the responsibilities of the data controller and the data processor. If you are receiving personal data from a country territory or sector covered by a European Commission adequacy decision, the sender of the data will need to consider how to comply with its local laws on international transfers. You should check local legislation and guidance in this case.
4 – Cyber Security health check
The ICO is increasing its capacity and efforts to crack down on data breaches, post-Brexit. Now is a great time for all companies to have a health check to understand their Information Security posture and GDPR compliance. Nobody wants to be caught handling data improperly and fined when it could have been prevented with education and training.
A gap analysis performed by an expert is money well-spent. It’s also a fact that companies that have cybersecurity and Information Security controls are not only able to better defend against attacks but are also far better placed to recover from an attack.
It’s important that all businesses – large and small – are properly preparing their data storage and transferring for the 1st January. ICO has been busy setting examples by fining large, high-profile companies for failing to keep millions of customers’ personal data safe.
It will continue to come down hard on the data breaches of personal identifiable information and special categories of data. The saying ‘prevention is better than a cure’ rings truer than ever this year, and you will thank yourself if you make the efforts to properly store your data now, and not when it’s too late.
2020 reflections and 2021 outlook
By John Hunter, Head of Banking and Fiduciaries, Finance Isle of Man
Reflections on the most surreal year
The Covid-19 pandemic has completely changed the world as we knew it, resulting in catastrophic loss of life and fears of a downturn hang over global economies like a sword of Damocles. In the UK, the new strain has further exacerbated the situation. As I am sure many have already said we are living in what could be called the most surreal times. People have been trying to cope with this “new normal”, by changing their lifestyles and evolving behaviours.
The Isle of Man responded swiftly to the pandemic by closing its borders and enforcing social restrictions which everyone respected and adhered to. Socially and culturally the Island demonstrated all the good things that come from living on a relatively small Island where community still means so much.
The Isle of Man’s financial services sector adapted quickly, seamlessly transitioning to working from home. The banks too adopted flexible remote working practices and continued to support clients around the world helping them navigate the challenging situation and making the most of any opportunities that arose.
Although there is no substitute for face-to-face interactions, we all embraced web-conferencing platforms like Microsoft Teams and Zoom to stay connected with contacts around the world and build and nurture business relationships, whether it was with financial services firms or high net worth individuals looking to relocate to the Island.
Furthermore, a priority for the Isle of Man has been to reinvigorate the business and cultural ties with South Africa. In a normal world, we would have travelled to the country, held in-person meetings with businesses and industry representatives and talked about building on our wonderful historic ties. However, because of the scale and breadth of disruption we had to change all our plans! We hosted a virtual roadshow which comprised a series of webinars exploring why it has never been more important for South African businesses and individuals to choose the right jurisdiction for long term financial planning.
Looking ahead to the future
We are all hoping that the global rollout of vaccines will provide the pathway to some form of return to normality and all the things people are missing will be back. Like amidst all periods of immense turmoil, interesting, new possibilities have emerged such as the revolution in work culture and a renewed importance of being close to nature and green spaces is. And these possibilities can help reshape society for the better.
The global economic recovery and rebuild might seem further away in the current environment especially amidst the new lockdowns. But we are confident in the resilience of economies and are hopeful that different industrial sectors and governments working together would result in green shoots.
The financial services industry has an important role to play in getting the world economy back on its feet. It is a core component of the solution to continue facilitating the financing of corporates, as well as to develop sustainable finance and nurture digital technologies which have proven to be vital during the pandemic. The sector should continue its cooperation and collaboration with governments and regulators to ensure efficient capital flows and financial stability for businesses and individuals.
Banks too have a crucial role to play as they are instrumental to the effective transmission of monetary policies and stimulus packages. As mentioned in a report by EY: “Financial insecurity in the wake of COVID-19 will require banks to boost consumer confidence and help build a more resilient working world.”
We expect the Isle of Man’s financial services sector and banks to continue navigating the situation with resilience as they have been doing thus far and contributing to the global recovery process. Also, we truly hope this will be our busiest year ever (subject to our ability to travel), with an extensive global schedule of planned activity to promote the Island as an international financial centre of excellence and innovation. Personally, I had planned to be in South Africa for the British & Irish Lions tour, but regrettably, it might not take place and as such we will look forward to catching up with friends there as and when we can.
No doubt, there are significant challenges for the world ahead but as Albert Einstein said: “in the midst of every crisis lies great opportunity”. And it is this opportunity that we all need to work together to identify and make the most of. We are confident that in 2021 the Isle of Man will continue to support financial services businesses help their clients, employees, and the wider society through these surreal times. We are all in this together.
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