76.The UK financial sector employs over a million people, of whom around 60,000 are EU nationals and 100,000 non-EU nationals. While these proportions are roughly in line with the workforce as a whole, financial services employs a greater proportion of highly-skilled migrants. Around 50% of the general workforce are educated to level 3 (equivalent to A-level) or above, while the figure is 63% in financial services. When asked to provide reassurance that the financial services industry would continue to be able to recruit skilled staff, the Chancellor, Rt Hon Philip Hammond MP, said on 25 October that “I see no likelihood of our using powers to control migration into the UK to prevent companies from bringing highly skilled, highly paid workers here.”
77.Nevertheless, witnesses expressed concern over the ability of the financial services sector to recruit and retain staff. Sir Charles Bean said that access to a deep pool of skilled labour was one of the attractions of London. Financial services firms would want “to get the specialised labour that they need in a relatively efficient and smooth way.” His worry was that “some heavy bureaucratic process is put in place that takes a very long time to operate and becomes very cumbersome”.
78.George Hay, of Breakingviews, Reuters, believed that concerns had subsided since the referendum:
“At that point, a lot of people in the financial sector were saying, ‘We need an EEA model. We need a Norway model. Basically, we need freedom of movement, which would allow us to keep access to the single market and pretty much to keep the passport that we have’. Now there is probably a bit more realism that that is not going to be possible. There will have to be some kind of action on restricting on freedom of movement.”
Anthony Browne reported concerns in the industry, but noted that “we accept the verdict of the British public”. Huw Evans, on the other hand, said that “for the insurance and longterm savings sector it is something that comes up repeatedly from our CEOs”.
79.Andrew Gray echoed Sir Charles’s point about bureaucracy. Financial services was “an industry that is used to moving its people internationally and doing so quickly. Again, there would be impediments to that movement.”
80.The issue of free movement goes wider than just the financial services industry, and a more detailed inquiry into possible models for UK-EU movement of people is being undertaken by the EU Home Affairs Sub-Committee, as part of the EU Committee’s wider work programme.
81.The ability to continue to access to highly qualified staff and the ability to transfer them between the UK and the EU is a key issue for the financial services industry. While we welcome the Chancellor’s reassurance that highly skilled migrants will not be prevented from coming to the UK, as far as it goes, we note that maintaining appropriate labour market flexibility will be critical to the UK’s long-term economic prosperity.
82.FinTech is a relatively small but growing part of the UK’s financial services industry, estimated to generate annual revenues of around £20 billion. FinTech covers a wide range of activities in which companies use technology to make financial services, enable financial services, or drive technological innovation in provision of financial services. They often compete directly with banks—through a process of disintermediation—to sell financial services and solutions to customers, examples of which include money transfer, lending, investment and payments (see Appendix 5). Daniel Morgan, Head of Policy and Regulation, Innovate Finance, described the area as an “amorphous space”, within which “Brexit will hit each sector differently”.
83.FinTech relies upon foreign staff to a greater degree than the wider financial services sector, and may thus be affected more acutely by any restrictions of movement of people following Brexit. Daniel Morgan told us that 30% of the founders of Innovate Finance’s start-up member base were born overseas. FinTech was “inherently an international sector”, where access to talent was particularly important. The sector relied on three types of talent: those with Science, Technology, Engineering and Maths (STEM) skills, financial services talent and entrepreneurial talent. Giles Andrews, Chairman, Zopa, added that half his workforce was from outside the UK, mainly from the EU, and that he was “already finding less desire among bright eastern Europeans, Germans and French people to come and work in the UK”. He felt that the UK was “underdeveloped in terms of its STEM education”.
84.Daniel Morgan was particularly concerned by the impact of a stricter immigration regime on entrepreneurial talent:
“Obviously there is an entrepreneurial visa, but you have to have a huge amount of capital already in place behind you or prove that you are about to set up a business. Many of our founders came here just with an idea, and with a smaller labour pool that talent will no longer gravitate here.”
Mr Morgan also felt that, if EU immigration were restricted, the UK would need to increase the numbers eligible to enter under a new visa regime, “or keep them open to review on a constant basis. We would have to be a lot more flexible in trying to address some of the skills shortages if we were going to do that.”
85.Access to data is another key priority for the FinTech sector. Bruce Davis, Managing Director, Abundance Finance, said that the issue was about where it was stored and how it was shared. As a result, the arrangements for accessing data facilities would have to be re-examined. A lot of data was currently stored in Ireland, and it was “not straightforward to unravel all those different commercial agreements and what commercial providers are prepared to take in terms of risk within those agreements, as well as the political ones”. There were two levels of complexity: what companies were prepared to do and what might have been agreed at a policy level. Mr Davis said that he was still working out how to unpick that complexity.
86.Daniel Morgan pointed to the forthcoming implementation of the General Data Protection Regulation (GDPR). It would be essential that, following Brexit, the UK continued to observe similar standards, so as to comply with the third-country equivalence regime: “Any extra layer of friction will have an impact on investment and business models, so it is critical that we do not go down our own path in terms of data processing given the size of the neighbour next to us”. He also noted that FinTech companies with business models based in the Cloud would be affected disproportionately by any divergence, and supported continued equivalence with the Payment Services Directive II (PSD II), which would make customers’ data available to third parties. Giles Andrews agreed, noting that, philosophically, the UK was closer to the EU than the US on issues of data sharing. It would be helpful to maintain a strong relationship with the EU on such matters.
87.Other cities have been keen to attract FinTech companies from London, with Berlin particularly active. Giles Andrews, while noting that London’s position as a FinTech hub was helped by the close proximity of regulation, legislation, funding, research and advice, was concerned that entrepreneurs would be less likely to choose to start companies in London in the future. Daniel Morgan highlighted the ecosystem effect: “If you take one vital part out of it, you do not know what the effect will be. Taking one part of the food chain out could be benign. It could readapt or it could crumble.” On the other hand, FinTech had been successful in London largely because of its role as a financial services centre: “There is a venture capital community that fed off a wider and older financial services ecosystem, which has meant that London is more of a natural home.” He noted that the US FinTech industry, which had emerged in California, had recently moved to New York because of its financial services industry. Witnesses also praised the work of the FCA in creating a supportive regulatory regime.
88.The FinTech industry has thrived in London, but could potentially move elsewhere. We note the concerns of the industry over future adherence to the EU data protection regime, and over its ability to recruit adequately qualified staff, and to attract the entrepreneurial talent needed for innovative start-ups. The Government should be particularly mindful of the opportunities for FinTech to develop further in the UK and of the effects of Brexit on a promising industry.
81 PwC, Leaving the EU: Implications for the UK financial services sector (April 2016): [accessed 29 November 2016]
82 HC Deb, 25 October 2016,
88 Ernst and Young for UK Trade and Investment, Landscaping UK Fintech: [accessed 29 November 2016]
95 This package comprises Regulation (EU) 2016/679, 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC (General Data Protection Regulation), (4 May 2016) and Directive (EU) 2016/680, 27 April 2016 on the protection of natural persons with regard to the processing of personal data by competent authorities for the purposes of the prevention, investigation, detection or prosecution of criminal offences or the execution of criminal penalties, and on the free movement of such data, and repealing Council Framework Decision 2008/977/JHA, (4 May 2016).
98 ‘Berlin claims post-Brexit success in luring start-ups’, Financial Times (8 November 2016): [accessed 29 November]