Fintech Sector Needs Brexit Lift, U.K. Government Warned

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The U.K. should overhaul its stock listing rules and visa requirements to help the country’s fast-growing fintech industry compete after Brexit, a government-backed review has found.

The report, led by former Worldpay boss Ron Kalifa, warned that Britain’s departure from the European Union gave Paris, Berlin and other cities “a window to capitalize on uncertain messaging” around immigration and other regulatory changes.

“Without additional action, the U.K. risks having its market share eroded,” the review warned.

Fintech Sector Needs Brexit Lift, U.K. Government Warned

The paper published on Friday is the first of several reviews intended to aid Prime Minister Boris Johnson’s government as it considers easing regulations on the financial industry, which was largely excluded from the British trade deal struck last year with the EU.

Chancellor of the Exchequer Rishi Sunak is set to endorse the proposal for a new visa for tech talent in his budget next week, according to a person familiar with the matter.

Kalifa’s review supports changing stock-listing rules to allow dual-class shares for fintech companies, a change meant to entice founders to list their companies in London while allowing them to retain control over their firms.

Other recommendations include:

  • allowing companies to join the top tier of London’s market by selling just 10% of their shares, down from 25%
  • relaxing rules that give existing shareholders first refusal during fundraising, known as preemption rights, to allow companies to raise more capital quickly
  • the creation of stock indexes for fintech companies to attract investors.

The Investment Association, which represents asset managers, welcomed the proposed reforms. “Any changes should, however, consider minority shareholder protections so that these fintechs can attract long-term investment,” Andrew Ninian, director for stewardship and corporate governance, said in an emailed statement.

The U.K. is already investing heavily in this industry, accounting for nearly half of venture capital investment in Europe with $4.1 billion in 2020, according to the trade group Innovate Finance.

Fintech firms employ an estimated 60,000 people in Britain and contribute 7 billion pounds ($10 billion) a year to the economy, with some of the biggest companies such as Wise, Monzo Bank Ltd. and Revolut already attracting billion-dollar valuations.

The industry represents a growth opportunity as other parts of the U.K. financial industry lose ground. London has seen trading in European shares and derivatives leave for Amsterdam, Frankfurt, Paris and even rival financial hub New York since the start of the year.

Kalifa’s review also recommends a government-backed but industry-led Centre for Finance, Innovation and Technology to coordinate fintech policies.

©2021 Bloomberg L.P.

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