Brexit presents an opportunity to the UK’s financial services sector, particularly with regard to its FinTech exports. That’s the message from the recent FinTech State of the Nation report from the government.

According to the report, this is because the UK is taking a “creative and ambitious approach” to financial services trade policy, in order to facilitate discussions on cross-border market access and ensure “advanced, fair and transparent operating environments”.

In other words, the UK – which has long been in the vanguard of European financial policy-making and regulation – is using access to its financial markets as a bargaining chip in Brexit discussions with the EU.

However, the report then goes on to say, “As the UK’s financial services industry expands it will ensure the continued competitiveness of the City of London as a major global financial centre. This will support growth and jobs in the UK and our partners’ economies, as new policy provisions are implemented and trade friction is reduced to develop more effective shared markets.”

This broad statement undermines the report’s credibility in two ways. First, it presents the UK financial sector’s continued expansion as a fait accompli, ignoring the many banks that are moving balance-sheet assets, operations, and/or staff out of London.

According to Bloomberg, Barclays is moving €190 billion to Dublin, Deutsche Bank is repatriating €400 billion, JPMorgan is relocating €200 billion of assets to Frankfurt, and UBS is moving €32 billion to Germany. That’s a total of nearly one trillion US dollars (£780 billion), equivalent to roughly one-third of UK GDP, leaving the country for Germany or Ireland.

Meanwhile, AXA, Bank of America, Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JPMorgan, Morgan Stanley, Nomura, Societé Generale, Standard Chartered, and UBS have all announced the movement of staff and operations out of the country.

Second, as the UK remains locked in divisive arguments over the Prime Minister’s rejected Brexit proposals, the prospect of No Deal, and growing clamour for a second referendum, the notion that there is an imminent future of reduced trade friction and “more effective shared markets” smacks of the kind of idealism that triggered the UK’s political cataclysm in the first place.

So what does the report offer in the way of a more substantial argument? First, it suggests that the Exceptional Talent and Startup and Innovator visas will make it “faster and easier for talented entrepreneurs to come to the UK and start a business”.

Meanwhile, the Department of International Trade’s (DIT) FinTech steering board is bringing together academics, industry experts, government, and regulators to drive new investment into the sector, it explains.

The UK has entered five FinTech Bridge agreements with other FinTech hubs: Singapore, South Korea, China, Hong Kong, and Australia. These bespoke agreements are designed to lower the barriers to international market entry and link UK-based FinTechs with new opportunities for international investment.

The DIT’s primary goal for the Bridge programme is to demonstrate the success of the UK’s FinTech companies and support their continued growth by helping them to scale in these new markets, says the report.

Meanwhile, the Department for International Development (DFID) is working with regulators and policymakers across a range of developing countries to “put the building blocks in place for well-functioning digital finance ecosystems, including modernising payment infrastructure and supporting conducive regulatory environments”.

“By creating sound, stable and supportive financial ecosystems abroad, coupled with facilitating useful collaborations between the UK FinTech sector and those in emerging markets, our ambition is to promote greater financial inclusion and and drive greater cross-border flows of activity,” says the report.

The impression that the UK is desperately trying to recreate in other markets – including emerging economies – the kind of trade terms and prominence it currently enjoys in the EU is hard to avoid.

According to the government’s own figures, in 2017 the EU accounted for 48 percent of UK goods exports and 40 percent of all UK services exports. In financial services alone, exports to the EU were valued at £26 billion, representing 24 percent of all the services exports to the continent.

According to a report from think tank the Centre for European Reform, published by the FT in February, UK financial services exports to Europe could collapse to just £9.8 billion under the terms of a free trade agreement.

Replacing that trade with services to the rest of the world poses a further challenge in that the UK has generally supplied services to other countries by incorporating new entities in those territories, losing the benefit to the UK itself.

“If you want to serve a particular market, you set up there,” said the FT report. Although Brexit advocates “have a tendency to say the single market in financial services does not exist”, the EU is in fact “the most comprehensive example of multi-country services liberalisation in the world”, it concluded.

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