The UK still has a chance to be a digital finance pioneer Post-Brexit, but will we seize it?
What will Britain’s role be as a financial innovation centre, post-Brexit? Our economy depends on it, yet over a year after our official exit from the EU on 31 January 2020, the answer is still not clear.
In 2018, GMEX Group and Greengage published a report and article highlighting “The ‘Digital Opportunity’ Of Brexit”. We looked at the economic opportunity for the UK to strike out on its own in shaping a unique approach to digital innovation after leaving Europe.
Our revised analysis, conducted 2 years later, suggests digital innovation could lead to an additional 300,000 high-value added jobs. The net result of focussing on digital innovation in the UK is estimated at 150,000 jobs and cumulative GDP growth of 5.7 percent over a 5 period. This would be more than enough to counter any potential losses due to Brexit. This estimate represents an uplift of 50,000 new jobs versus our 2018 analysis.
Britain’s existing achievements in Fintech mean there is reason to feel confident in forecasting the UK’s capacity to realise the opportunities of a digital currency, digital ID, and DeFi (Decentralised Finance) as well.
UK Chancellor Rishi Sunak recently raised his own thoughts on how the UK can lead in digitisation and financial technology, announcing the launch of a new taskforce. He also confirmed that he will be taking forward many of the recommendations made in the recent Fintech Review and the Listing Review. In his recent speech, Sunak said: “if we can capture the extraordinary potential of technology, we’ll cement the UK’s position as the world’s pre-eminent financial centre”.
So what specific steps could the UK benefit from as part of a supportive industrial strategy? Stablecoins present a unique opportunity for the UK to participate in a reinvention of payment rails. China is already testing their national digital currency while the USA, with the world’s predominant reserve currency, is relatively behind. In addition to the efforts of private companies in this space, the UK could look at preparing a digital sterling to increase the attractiveness of GBP as a reserve currency (and reduce costs of debt borrowing).
The technology for Digital ID is already there and, with government support, it might be possible to build a consortium to make it happen. The potential for cost reduction in financial services for a consolidated KYC / AML process across industry participants is huge.
DeFi is nascent but if the UK were able to provide clear guidelines for bringing it into the regulatory perimeter (e.g. within guidance of FATF “Travel Rule”) and enforce KYC / AML there is also a considerable opportunity to steal a march. DeFi seems to be the killer app for digital beyond currency / payments efficiency and ID.
The economic argument for pursuing the above opportunities more than outweighs any potential downside from the economic impact of Brexit. For this to become a reality, the flagship initiative could be the UK’s “Britcoin” Central Bank Digital Currency (CBDC). This has the capacity to facilitate a more robust and transparent domestic and international commerce ecosystem — given the pound sterling’s role as an international reserve currency.
Delivering this will require a more forward-looking approach than exists currently. Strategy will need to be linked at all levels — government, regulatory bodies and industry — to drive forward collaborative changes. The UK needs clear leadership and advocates to deliver on Fintech’s promise, moving beyond consultation and into implementation.
Yet, if proposed policy changes can be implemented successfully, the UK can become not just a Fintech epicentre but can also propagate innovation and digital economic development across the globe. The question is can we afford not to seize this chance?
The full research is available on the GMEX website.