Brexit is not a concern as challenger banks still want to set up in the UK

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The chaos and unpredictability of a post-Brexit Britain has apparently not affected hungry and hopeful financial services firms looking to start their businesses in the UK, according to the specialist PwC practice working with potential market entrants.

Nine-out-of-ten of the PwC ‘s Authorisation and Start up Unit’s clients that were planning to set up a new financial services firm in the UK before nearly 52% of its population decided to leave the EU, are still going ahead despite the result.

In fact, PwC expects to see continued growth in newcomers that focus on specific market sectors, boosted by the ‘attractive returns’ achieved in the retail banking sector, the strategic direction of some incumbent global investment banks in particular, and the ongoing innovation in technology.

Stephen Morse, financial services partner at PwC said:

“We are working with approximately 20 prospective new banks and other large FS businesses looking to set up in the UK. They are a mixture of domestic UK businesses, EU-based individuals and businesses and those from around the world including from China, Turkey, Japan, South Africa, Asia and the Americas.

“What is striking is the variety of new businesses that are applying for UK licenses 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 attributes this positive outlook to a few key factors that include Britain’s reputation as an innovator, progressive regulatory regime and the combination of a sophisticated financial system and a highly skilled workforce.

Stephen Morse, financial services partner at PwC, added:

“All of these firms have a well-researched idea of the market opportunity, a clear strategy to engage the regulators’ hearts and minds, an understanding that they need to have the right tax and legal arrangements in place, and a proper plan for how to both ‘build’ and ‘run’ the bank in a sustainable, scaleable and cost-efficient way.”

 

Investors remain positive

Brexit has also left investors unfazed as Andrew Kail, UK head of financial services at PwC, said:

“There remains a wide range of potential investors and backers for these new market entrants, not only from the more traditional type of equity investor, but also from new investors who are looking at providing debt funding.

“Potential investors remain willing to look carefully at well thought through and presented market analyses, business plans and projected returns. However there remains a real emphasis on high-quality applicants, and a clear focus on having the right strategy for negotiating price and terms with potential investors and backers.”

One key reason for such positivity is the fact that the make-up of investors and backers is not only EU countries. PwC says the scale of potential investment is significant: PwC has estimated that the total capital already committed exceeds £200m, with total capital and funding of approximately half a billion pounds featuring in their clients’ business plans.

 

Positivity doesn’t mean the UK hasn’t changed

However, being positive and confident does not mean the UK landscape hasn’t changed. A post-Brexit Britain is a tough environment where smaller lenders like Virgin Money and Aldermore’s shares fell an average of 26.7% the Monday after the referendum vote, said Reuters.

Lawrence White, Reuters banking correspondent, said:

“People with retail deposits are protected up to 75-thousand pounds, so there’s no immediate cause for concern that depositors need to come and withdraw their cash. The worry here is these banks may find it harder to lend and that small businesses may suffer.

“The banks are obviously worried, they’re going out there and trying to reassure their customers, we’re here for you and it’s business as usual, but we have already heard from some banks they’re going to tighten their lending criteria which makes it harder for small businesses to borrow, which has an impact on the economy.”

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