Brexit could negatively impact Scotland’s growing FinTech sector unless EU passporting rights are continued, an industry report has warned.
The UK is the leading global hub for innovative financial technologies - known as FinTech - with many firms based in Edinburgh and Glasgow.
But the sector is largely regulated at EU level and the loss of passporting - which allows firms to complete cross-border transactions without paying stiff tariffs - could hamper growth.
ScotlandIS, a trade body representing digital technology companies north of the border, assessed the Brexit impact in the latest of a series of briefings for the IT industry.
Svea Miesch, policy manager at ScotlandIS, said: “British banks and other financial services companies owe their success partially to the ability to trade in all EU countries without having to register separately in each country, guaranteed through the EU passporting rights. These rights are linked to the UK’s membership in the EU single market.
“The majority of FinTech companies are operating only in the UK and therefore do not rely directly on passporting. However, FinTech businesses often work in partnership with banks and will therefore be indirectly affected. The loss of passporting would also make future expansion to other European countries more difficult.”
Following the UK’s exit from the EU, banks and financial services will look for ways to continue to trade easily in the EU, believes Callum Sinclair, partner and head of technology at Burness Paull.
Sinclair said: “One option will be to establish part of the business in an EU country. This would need to be a ‘significant presence’.
“It is not yet clear what defines such a significant presence in detail but some may interpret this as having headquarters within the EU. Such moves will be regulatorily complex, costly and risk undermining Scotland’s strong financial services sector on which FinTech companies rely.”
He continued: “Another option would be to obtain an equivalence status from the European Commission, confirming that British and EU financial services regulations are compatible.”