Uncertainty is the buzz word in the post-Brexit world, but new businesses are determined to stick to pre-existing launch and expansion plans.
PricewaterhouseCoopers (PwC) has found that 90% of its authorisation and start-up unit’s clients that were planning to set up a new firm prior to the referendum are still ready to take the plunge and launch in the UK.
‘We are working with approximately 20 prospective new banks and other large financial services businesses looking to set up in the UK,’ said Stephen Morse, financial services partner at PwC.
‘What is striking is the variety of new businesses that are applying for UK licences is not just limited to “mainstream” retail challenger banks, mortgage lenders and asset managers.
‘There are a range of new technology-enabled banks, fintech businesses, commercial banks and even niche investment banks who have identified gaps in the market in part caused by big global banks having pulled out of some businesses over the past few years.’
PwC noted this could be due to several factors, including the UK’s progressive regulatory regime, its established financial system and its image as a market that embraces innovation.
On this basis, the consultancy and accounting giant expects to see continued growth in the number of new entrants.
Boutique outlook flourishing
The sentiment is echoed by James Bedford, co-founder of Thornbridge Investment Management, which recently launched a regulatory hosting service for discretionary fund managers and fintech start-ups.
He argues the backdrop that enables new wealth management boutiques to flourish continues to improve. ‘There is a lot of talk about uncertainty, but I think the forces driving wealth management start-ups are unlikely to change. Two that are encouraging are fees being driven down and service expectations being raised,’ Bedford said.
He notes that fees have been trending down since the retail distribution review and as charges become more transparent and low cost D2C services emerge, wealth management incumbents will continue to be challenged by smaller players.
‘It’s a competitive marketplace - these clients are demanding greater service and those are the forces driving start-ups. There is uncertainty and we do have volatile markets, but policymakers are trying to get ahead of the curve,’ he said.
‘We haven’t had any conversations with people who were looking to sign up, now showing any reluctance.’
Technology provider Equiniti Weath Solutions’ managing director Huw Thompson said the first thing to remember is the amount of time it will take for the UK to exit the EU.
Although many are concerned that the loss of EU funding and grants for universities could stifle innovation, Thompson argues that chancellor George Osborne’s recently revealed plan to cut corporation tax to less than 15% will mitigate that.
‘I think it’s inevitable that there will be some pause while the situation is clarified. It will make fundraising activities more difficult, but should the lower corporation tax come into force, that will provide a balance,’ he said.
While potential regulatory changes post-Brexit could require systems upgrades, Thompson believes these should not prove so onerous as to result in firms delaying expansion plans.
That said, Irish wealth manager Davy Private Clients, which recently launched into the UK by opening a London office, has said it is putting its immediate plans for further expansion in Britain on hold, while it awaits more clarity.
Davy’s head of regional offices Stephen Felle expects this hiatus to last months, although he anticipates the firm’s plans to be back on track in early 2017. He stresses that the pause is purely Brexit-related rather than a rethinking of the firm’s strategy.
‘Davy Private clients do have an intention to build a wealth management presence in London in the short to medium term, but the recent Brexit referendum has posed some questions for us that cannot be answered,’ Felle said.
Regarding the impact on the wider industry, he added: ‘I would have thought on the acquisition front that any of the serial buyers or consolidators who were acquiring with a view to exit or an IPO, might have cause to re-evaluate their strategy. I think the IPO market or the turning around or flipping a series of acquisitions would be more difficult in the foreseeable future.’
Early Metrics CEO Antoine Baschiera is sanguine, believing it is too early to know the eventual impact.
‘Unless start-ups are directly exposed to financial markets, whether by operating in the fintech industry or wealth management, it is too early to discuss the Brexit’s short term macroeconomic impacts on early stage ventures,’ he said.
‘We need to be prudent in the way we all react following the referendum, in order not to create a self-fulfilling prophecy.’
He added that in wealth management, issues over regulatory regimes and passporting will present challenges for start-ups in fintech, while the details are thrashed out.