The Public Accounts Committee (PAC) report warns that there could be “potential disruption” at the UK border if cross-border passenger volumes, which have been at a fraction of normal levels due to the pandemic, recover as expected in 2022.
This could be “exacerbated by further checks at ports as part of the EU’s new Entry and Exit system and especially at ports like Dover where EU officials carry out border checks on the UK side,” the PAC’s report says.
“The PAC has repeatedly raised concerns about the impact of changes to trading arrangements on businesses of all sizes and we remain concerned.”
Since the end of the agreed transition period on 31 December 2020, there have been a series of changes in how the UK trades with the EU, and in relation to the movement of goods between the UK and Northern Ireland.
This has led to the EU introducing full import controls. While the UK had initially intended to follow suit, the implementation of such controls has been delayed by the government three times over the past year.
“Government plans to create the most effective border in the world by 2025 is a noteworthy ambition but it is optimistic, given where things stand today,” The PAC says, moving on to comment that it is “not convinced that it’s underpinned by the plan to deliver it.”
The dispute is about the fees charged by Visa, which have recently increased due to Brexit. Interchange fees sit at the centre of this issue. This is a small fee levied by card networks such as Visa on every transaction made using its cards, taken to cover the cost of processing the payment.
Under 2015 EU regulation, interchange fees were capped in the bloc of 0.2% for debit card transactions and 0.3% for credit cards. At the time of introduction, the EU said that the regulation would save consumers approximately $6 billion in hidden fees. However, post-Brexit, operators in the UK are no longer bound by these rules.
According to the Financial Times, Visa planned to up its cross border interchange fees from 0.3% to 1.5% this year. Such fees, to be paid either by Amazon directly or by sellers on its platform, would erode profit margins and lead to more costly products if passed on.
A spokesperson for Amazon said, "The cost of accepting card payments continues to be an obstacle for businesses striving to provide the best prices for customers. These costs should be going down over time with technological advancements, but instead, they continue to stay high or even rise.
"As a result of Visa's continued high cost of payments, we regret that Amazon.co.uk will no longer accept UK-issued Visa credit cards as of 19 January, 2022."
The online retailer also advised its customers to update their default payment.
Following Boris’ vaguely described promise of a “high-wage, high-skill, high-productivity” economy during his speech to the Tory Conference, the right-wing Adam Smith Institute called the plan “bombastic, vacuous and economically illiterate.” The CBI warned it’s a “fragile moment” and how empty ambitions and promises on wages and productivity could lead simply to higher prices.
Boris shrugged it off. He says all the necessary things for the Tory faithful: “I’m a staunch, low-tax Conservative who believes in an enterprise economy”, which is probably what Margaret Thatcher was thinking before she junked the UK’s ageing manufacturing base 40 years ago. A political lifetime is next week. Political consequences can take decades to emerge – Thatcher’s programme ignited the fire of Scottish nationalism and set the UK on course for a potential breakup.
Boris Johnson is a master of the soundbite moment. Now he’s telling the world the UK will be the “Qatar of Hydrogen” – yet I doubt he has any real familiarity with the enormous problems that will accompany the hydrogenisation of the Global Economy. Still, it sounds good ahead of COP26.
The City of London’s markets are concerned with immediate threats. They fear the multiple storms lurking on the horizon: inflation/stagflation, trade, recession, government debt, taxes, consumer confidence, and geopolitics. These are the normal ups and downs of markets that competent governments and functional economies take in their stride.
Boris Johnson is a master of the soundbite moment. Now he’s telling the world the UK will be the “Qatar of Hydrogen” – yet I doubt he has any real familiarity with the enormous problems that will accompany the hydrogenisation of the Global Economy.
These economic squalls only become truly dangerous storms when they trigger serious economic damage, or the ship of state is no longer fit to ride them out. And that’s what really worries markets deep down about the UK. It’s the absence of a discernible joined-up strategy to address the UK’s economic reality that scares the City. The government’s competency is increasingly being questioned.
The reality is the crises are already upon us: supply chain fractures, diminished opportunities and social mobility, Brexit, Europe, a dearth of innovation and entrepreneurship, rising real and relative poverty, insufficient wages in unattractive jobs, decaying infrastructure, crushing bureaucracy, a dysfunctional housing market, and ossified unfit-for-purpose public services.
They can be solved – but not separately. Addressing these issues holistically requires time, money and joined-up thinking. But, there is little joined-up thinking – just triage offering sticking plasters to be slapped on gaping economic wounds, or telling the victims it’s “transitory”. Not enough lorry drivers? Let’s bring in Europeans on three-month contracts! Energy bills unaffordable? Wrap up well then!
Rather than address these issues through policy, it feels like the UK’s economic future is being gambled away by Boris betting his political popularity will see him through. He’ll bluster past any problem hoping that it all sort-of-comes-together around the “hi-wage, hi-skill, hi-productivity” soundbite economy he promised us. If it doesn’t, he’ll wage the next election promising it’s coming – assuming he doesn’t jump ship into some high-paying private sector role.
Politics and Policy sit uneasily together. Yet, never has the UK required joined-up economic policies as much as today. The big question is – do the Tories have the political competency to deliver? There is – apparently – “tension” between Chancellor Rishi Sunak and Boris.
Which one is right?
Perversely, it might be Boris. The success of governments around the globe in raising and distributing billions in pandemic support spending packages without causing government debt markets to implode should have been a light bulb moment. Since the last economic crisis in 2009, we’ve proved devasting austerity is not an answer while other solutions, including printing money, are available and proving practical. Wake up to the possibilities of fiscal boost and new monetary policy.
Let’s be clear: there is no free Magical Monetary Tree of unlimited government spending – but the markets are open for smart, credible governments to sell more debt and create more money. The key word is credibility – and avoiding policy mistakes. The UK spending itself out of its current hole should be entirely feasible. Rather than hiking taxes and cutting the modest £20 a week targeted helicopter money of universal credit to the poorest 10% of the economy, the government could keep the economic wheels spinning through the current supply chain/recession/stagflation threat.
Rather than address these issues through policy, it feels like the UK’s economic future is being gambled away by Boris betting his political popularity will see him through.
Sunak’s plan to impose austerity and tax hikes as we enter a potential stagflationary environment could prove a recipe for a confidence breakdown. It looks a classic policy mistake.
What’s the alternative? Well, that’s difficult. Politically it’s impossible to tackle the ever-hungry spending behemoth the National Health Service has become. But it’s critical it’s done – refocusing it to deal better with the modern age and the diseases of the old and infirm. It’s now in long-term crisis as it scrabbles to refocus post-pandemic – costing billions. Staff are underpaid and demotivated – costing more billions. Yet the NHS was recently advertising 200 plus senior managerial roles paying more than the prime minister. Modern tech can help – fitness and diagnosis can digitise, but the government has a peculiar ineptitude with new systems. Unless the government addresses the growing burden of public sector pensions – the entire UK tax take will soon be directed to paying the retirement costs of state employees. But to even suggest it – would again be political suicide.
There are a host of other policy initiatives the government could consider, but sadly they are the kind of concepts Boris and his fellow Oxbridge PPE rejects don’t have the imagination or political bravery to explore. I reckon Sunak probably does – but he’s got to bide his time.
As a primer Boris needs to understand good and bad government spending – and integrate them into his political calculus. Creating economic growth through a fiscal boost to companies to create jobs, growth, and build infrastructure is good. Solving skills shortages by paying doctors, nurses, engineers and HGV drivers to train, rather than charging them, would work. Spending money on fast, small Nuclear energy solutions and tidal power – tick. Helicopter money has been shown to work in a crisis. Markets accept the QE money creation trick – it works.
Ask difficult questions: Why are we charging students for their education? Why aren’t we paying them to upskill? Why aren’t we spending more on the armed forces in a period of rising tension to generate greater security, but also multiplier effects across the economy? There are a million more to be posed…
There are positive signals beginning to emerge – but aside from lots of words, there seems to be very little strategic thinking going on in the party of government to actually deliver these hi-skill jobs and raised productivity.
Words are cheap. Action is difficult.
Bill Blain is Strategist at Shard Capital and author of the Morning Porridge markets blog: www.morningporridge.com
Annie Button, professional content writer and branding aficionado, explores how businesses are successfully recruiting and retaining new delivery drivers amid the supply chain crisis.
While the HGV driver shortage is based on a variety of factors, including the pandemic, and Brexit, businesses are stepping up their efforts to recruit, train and retain new drivers in record time and mitigate the impending supply chain crisis.
Amid serious concerns about the driver shortage impacting food, fuel and other deliveries in the build up to Christmas, the Government introduced measures to promote HGV driver recruitment both at home and abroad. Almost one million targeted letters were sent to drivers with existing HGV licences to attract them back to driving while 5,000 temporary visas were fast-tracked to help fill HGV vacancies from applicants overseas.
Even with a shortage of drivers and new applicants coming forward, many still won’t be sufficiently qualified for the role. Businesses are solving this issue more directly by incentivising roles by paying for the relevant HGV training courses, offering scholarships or subsidising training. This means that applicants truly interested in a career in this industry can have their training paid for and businesses will have a qualified individual at the end that can fill the vacancy they have available.
Now skilled drivers are in such short supply, many businesses are combatting driver shortages by focusing on employee retention. In addition to the driver shortage, recruiters also have the issue of high turnover rates which are common within this industry.
The way to successful retention is focusing on more than simply providing bonuses and financial incentives, though these are beneficial to encouraging applicants too. There have been many reports in the media of dramatic hikes in salaries which are not sustainable in the short-term. Strong retention rates are linked with the quality of the role and the business, such as having a positive company culture in place, listening and responding to feedback from staff and prioritising the safety of drivers, again highlighting the importance of driver training. Addressing the current driver shortage, the Government also created an extra 50,000 HGV annual driving tests and shortened the application process for such tests.
The majority of HGV drivers are men, with women making up just over 1 percent of the current workforce. The male-dominated industry can mean that fewer women apply for roles, as they don’t feel as welcome or encouraged to fill vacancies. For logistics businesses, women are a hugely valuable resource that organisations aren’t doing enough to utilise.
Businesses can tackle this through strategic recruitment campaigns that specifically target women. This includes highlighting the benefits of working in the industry and supporting women with female-centred scholarships that will highlight a career and industry they’ve likely not considered before.
There’s no denying that the unsociable hours can put people off the industry. To encourage applications and to keep the staff already working in the role, working conditions need to be a focus for recruiters.
Tackling this issue comes down to providing flexibility and better facilities for staff. This might mean reducing the number of duties employees need to carry out, to reduce overnight stays and being away from home, or providing a better balance in terms of working days and days off. It also means having a clear policy on keeping cabs tidy and hygienic, so that no member of the team is working in a poorly maintained environment, and that lorries are checked regularly to prevent safety or mechanical issues.
Once businesses have addressed the short-term driver shortage, there are other challenges further down the road, too. One of the biggest problems that companies face when recruiting drivers is the ageing workforce. Fewer young people are considering lorry driving as a career choice, so as existing drivers retire, there aren’t as many people taking their place and picking up the shortfall. Beyond the high cost of acquiring a license, which has deterred many people from training in this industry, there’s also a lack of understanding of the sector. Young people aren’t being educated about how the logistics sector operates and what the role of an HGV driver entails, meaning it’s less likely to be considered as a career choice.
To overcome this difficulty, businesses can offer apprenticeships which are a way for young people to gain the necessary skills and experience without having to pay out for training. Engaging with younger people is also a great way to educate them and encourage them to take up a career in the driving sector. Highlighting the benefits that the role offers, providing competitive salaries and delivering a role that offers career progression and fulfilment can all help to attract younger people.
The HGV driver shortage has reached critical levels now and is impacting other industries, so businesses have their work cut out for them when it comes to qualified driver recruitment, professional training and long-term retention. Managing recruitment properly is essential to ensure safety and compliance while still filling roles as quickly as possible to ease the burden that the shortage of drivers continues to have on the UK’s overall economic recovery.
On Thursday evening, environment secretary George Eustice announced that butchers in abattoirs and meat processing plants will be permitted to come to the UK to work for six months. He said that extra butchers were needed to meet staffing shortages in the sector.
The government’s intervention comes several weeks after farmers in the UK began culling healthy livestock due to a lack of staff in the abattoirs and plants where the animals were being processed. Thousands of pigs have been culled in the past week alone.
The measures “will help us to deal with the backlog of pigs that we currently have on farm, give those meat processors the ability to slaughter more pigs, and crucially as well we are going to make available what is called private storage aid to help those abattoirs to temporarily store that meat,” Eustice said.
UK ministers have also launched a consultation on extending cabotage rights, which would allow foreign HGV drivers to make unlimited journeys for two weeks within the country before returning home. Currently, foreign HGV drivers are only permitted to make two trips within seven days.
The meat industry is one of several sectors in the UK struggling with labour shortages exacerbated by Brexit and the Covid-19 pandemic. A lack of HGV drivers has also led to further disruption for supply chains.
A recent report by accountancy firm Grant Thorton revealed that there were nearly 1 million job vacancies in the UK, with around half of this figure being in the food and drink industries which have heavily relied on an EU workforce for the past 20 to 30 years. While this might imply that Brexit is to blame for the UK’s supply chain crisis, the government and other prominent figures are insisting that the crisis is being caused by the lingering impact of the pandemic, making it difficult to understand what exactly is at the root of the problem.
Many industry bosses are blaming Brexit for the crisis, claiming that there’s a substantial lack of British workers filling the gaps left by Brexit in the haulage industry, hospitality industry, warehousing, and the meat production sector. In 2019, the average percentage of EU workers in meat processing companies stood at approximately 70%, according to BMPA.
Similarly, a March 2016 KPMG report for the British Hospitality Association showed that between 12.3% and 23.7% of the UK’s hospitality sector’s workforce was made up of EU nationals. At the time, KPMG estimated that the sector required 62,000 EU migrants per year to be able to maintain current activities and grow.
According to Grant Thorton, 1.3 million foreign-born workers had left the UK since the beginning of the pandemic and yet to return.
However, as the supply chain crisis spread to petrol stations up and down the country, transport secretary Grant Shapps dismissed claims that Brexit was at the root of the problem. He insisted that coronavirus was to blame and said that the shortage of lorry drivers in the country was due to the fact that 40,000 HGV driving tests could not take place because of the pandemic. There have also been ongoing Covid-related restrictions in some large manufacturing countries such as Vietnam, with Hanoi continuing its strict lockdown measures across 10 districts in early September.
Furthermore, it appears that the pandemic has not only limited the supply of some goods but has simultaneously had the effect of pushing up consumer demand. Flavio Romero Macu, a supply chain expert at Edith Cowan University, says that huge pent-up consumer demand in the wake of the pandemic has added to the strain on the world’s fragile economic ecosystem.
“Consumers are crazy to buy things because the world is awash with dollars from government stimulus, higher savings and pent-up demand. PlayStations, laptops, phones, gym equipment – you name it people are trying to buy it,” he says.
“Higher demand and restricted supply equals inflation: there’s no way out of it. You put all these things together and it's a perfect storm.”
The chief executive of the Cold Chain Federation, Shane Brennan, also agrees that the pandemic is to blame for the UK’s supply chain crisis, but he also pointed out that Brexit was limiting options for solutions.
Some critics argue that Home Secretary Priti Patel’s decision to shut the door to low-skilled workers in new immigration laws is the major contributing factor in the UK’s supply chain crisis. A spokesperson for the British Meat Processors Association (BMPA), which commissioned the Grant Thorton report, said that EU policy was not to blame for the issue. Instead, the BMPA blamed the Home Office’s domestic policy on who can and can’t come to the UK to work.
Retailers, meat processing plants, care homes, hospitality, and even big companies such as Amazon, are all competing for low-skilled, low-paid workers who are in very limited supply. This means that, even if there were plenty of lorry drivers on the roads, the UK’s supply chain would still have come under substantial strain from labour shortages.
Initially, the UK government rejected all calls to attempt to resolve the country’s supply chain crisis by issuing short-term visas to lorry drivers and workers from the EU, insisting that Brexit was the solution. However, in a major u-turn, the government has since confirmed a temporary visa scheme for 5,000 foreign HGV drivers as well as 5,500 poultry workers. The move aims to provide last-resort means of avoiding an escalation of the UK’s supply chain crisis before the festive season, with the government also announcing increasing funding for training and releasing a letter encouraging ex-HGV drivers to return to their former profession.
The cause of the UK’s supply chain crisis is still being hotly debated. However, the general consensus appears to be that, while it may have contributed to the problem, the covid-19 pandemic did not break the retail supply chain altogether. Ultimately, it seems that several different factors are to blame and, with several issues being much harder to fix than just one, experts are warning that the UK’s supply chain crisis could take a long time to fix.
UK banks and insurers have shifted thousands of jobs and over £1 trillion in combined assets out of the UK and into European Union hubs due to the impact of Brexit, a new study has confirmed.
According to research from think tank New Financial, more than 440 firms in the UK banking and financial services sector have relocate parts of their business, moved staff or established new EU entities in response to Brexit.
Roughly £900 billion of the relocated assets were moved by banks – equivalent to about 10% of the total assets held by the UK banking system. Insurance firms and asset managers shifted a further £100 billion.
“While this is the most comprehensive analysis yet of the impact of Brexit on the City, we think it is an underestimate: we are only at the end of the beginning of Brexit,” New Financial warned in its report.
The UK exited from the EU on 31 December after finalising a trade deal that did not cover the financial services sector. Without access to the single market and the so-called financial passport, which had allowed UK-based financial services companies to offer their services in Europe, firms have moved assets to EU nations to continue their operations.
The study estimated that between 300 and 500 smaller EU financial firms may open a permanent office in the UK, far lower than earlier forecasts of around 1,000. The study added that, while the UK still holds a £26 billion annual trade surplus n financial services with the EU, this figure may decrease as its dominant position is chipped away.
In the lead-up to Brexit, EY found that 400 relocations were announced at major financial services firms in London.
This ongoing disruption, coupled with changing consumer behaviour characterised by the growing preference toward mobile and online services, is driving regulatory changes that are shaping the future of finance.
While this is happening to varying degrees in regions and countries around the world, there are local nuances to consider. This is particularly true in the United Kingdom, where speculation is rife around what the future will hold for the UK following its departure from the EU and the impact this will have on financial services.
As one of the world’s leading financial centres, the UK is well-positioned to keep pace with changes in the industry. But in terms of regulations, there are still several questions around how the UK will adapt, what legislation it will adopt or modify, and what impact this may have on the wider EU region.
The Payment Service Directive 2 (PSD2) has been a linchpin of European financial regulations since its introduction in 2018, increasing security for online transactions and encouraging more competition through open banking.
The transition period ended on 1st January 2021 and enforcement of PSD2’s Strong Customer Authentication requirements for merchants will take effect at different times. The EU’s deadline is on 1st January 2021 while the UK’s is on 14th September 2021, which will no doubt cause a great deal of confusion for consumers.
It’s well known that digital currencies have – in their relatively short history – been used for illegal activities, so building trust in the technology through compliance will be a key focus for regulatory bodies in the future.
In the case of a no-deal Brexit, a draft version of the UK Financial Conduct Authority’s (FCA) Regulatory Technical Standards on Strong Customer Authentication and Common and Secure Open Standards of Communication indicates that the UK regulators would continue to accept the EU’s eIDAS certificates (or electronic Identification, Authentication and Trust Services) for authenticating third-party providers to banks. However, the document also recognises that UK entities may require alternative methods, suggesting that both routes are still on the table.
Discussions are still ongoing, but time is running out. As security is a key component of the directive, mandating the use of transaction risk analytics and replication protection in mobile apps, any new UK-specific variant will have to ensure that consumers remain protected and banks can still offer fully seamless digital experiences.
Driving digital identities
Some of the biggest regulatory developments throughout 2020 have come in the area of identity verification, with COVID-19 accelerating digitisation initiatives and investment. As an increasing number of customers are either reluctant or unable to visit a bank branch, fully digital and seamless identity verification has become a key requirement for remote account opening and onboarding.
This is an area where regulations – such as Know Your Customer (KYC) – play a key role, and where authorities have had to move quickly. For example, in response to the pandemic, the UK FCA issued guidance on digital identity verification permitting retail financial firms to accept scanned documentation sent via email and ‘selfies’ to verify identities.
This was supplemented by a 12-month document checking service pilot launched by the UK Government in the summer. Participating private sector firms can digitally check an individual’s passport data against the government database to verify their identity and help prevent crime.
And this is just the beginning. There are plans for private-sector identity proofing requirements and work being done to update existing identity-checking laws to become more comprehensive. Perhaps most significantly, the UK government plans to develop six guiding principles to frame digital identity delivery and policy: privacy, transparency, inclusivity, interoperability, proportionality, and good governance.
This all points towards a financial future that will be driven by digital identities. With customer behaviour likely changed forever, digital identity verification will be essential to improving the remote onboarding experience, while also minimising the threat of fraud and account takeover attacks.
The evolution of AML
Anti-money laundering (AML) legislation is also set to progress in the future, driven largely by an increasing focus on cryptocurrencies. Digital currencies are currently garnering plenty of attention from European regulators, as illustrated by the introduction of the 5th Anti-Money Laundering Directive (AMLD5).
EU member states were required to transpose AMLD5 into national law by the beginning of the year, with the goal of preventing the use of the financial system for money laundering or terrorist financing. One of the directive’s key provisions focuses on restricting the anonymous use of digital currencies and, as such, it now applies to both virtual cryptocurrency exchanges (VCEPs) and custodian wallet providers (CWPs).
VCEPs and CWPs that were previously unregulated must now follow the same rules as any other financial institution, which includes mandatory identity checks for new customers.
With the role of cryptocurrencies in our financial system expected to increase significantly over the coming years, we can expect European regulations to continue in this vein – particularly in a leading FinTech nation like the UK. It’s well known that digital currencies have – in their relatively short history – been used for illegal activities, so building trust in the technology through compliance will be a key focus for regulatory bodies in the future.
2020 has certainly been a year of upheaval for financial services regulations and we can expect this trend to continue into the new year. With digitisation in the industry evolving at a rapid rate, governments and lawmakers will have to work hard to keep pace. As the EU and the UK have shown, the future of finance will have plenty to offer.
Finance Monthly hears from Rob Coole, VP of Cloud Technologies at IPC, on the outlook for the UK fintech industry post-Brexit.
In recent years, the fintech industry has become an important focus for the UK, with the sector going from strength to strength. By the end of 2019, the UK's fintech sector was worth £11 billion in revenues, and accounted for roughly 8% of total financial services output. Adding to this, 44% of fintech companies that are based in Europe and valued at over $1 billion are based in the UK, while the UK continues to gain new investment in the fintech sector.
In a similar way to how the COVID-19 pandemic has introduced wide-ranging changes to the way we work and live, the impact of Brexit will continue to be felt for a long period of time.
While no single EU rival to the City of London has emerged yet, different Member States are taking advantage of the uncertainty presented by Brexit and are positioning themselves as new homes for fintechs. For example, both Lithuania and Malta have let it be known that they can provide new homes for UK-based fintechs, with Lithuania even running a PR campaign promoting itself as “the new capital of fintech” in the midst of the UK’s exit from the EU. This provides fintechs with a regulatory authorisation in an environment which has an entry point to the EU, something that the UK is now unable to offer.
Nevertheless, the Brexit situation is not necessarily all doom and gloom. There is the potential for a number of new opportunities to emerge on the back of Brexit for the fintech sector. For example, the combination of Brexit and the COVID-19 pandemic have given fintechs an opportunity to collaborate like never before in order to piece together end-to-end solutions. This has seen the emergence of a hybrid-European view as providers look to share connectivity across mainland Europe and the UK, with lots of solutions being designed between Frankfurt, Paris and London. Furthermore, this increase in collaboration should resolve a number of issues, such as reducing the dependency that fintechs have on countries and specific technologies.
Additionally, the Kalifa Review – a report on how the UK can maintain its leading global fintech reputation – laid out a number of recommendations to help the UK’s fintech industry to thrive in a post-pandemic, post-Brexit world. These recommendations include making changes to UK listing regulations so as to make the UK’s Initial Public Offering (IPO) market a more attractive location for fintechs, as well as creating a centre of Finance, Innovation, and Technology, to drive both domestic and international collaboration in order to boost growth across the country's fintech ecosystem. In addition to this, Chancellor Rishi Sunak’s 2021 Spring Budget included a new fast-track visa for specialists in the fintech sector – a recommendation from the Kalifa review that aims to provide a boost to the fintech industry post-Brexit. If the UK is able to take on board these recommendations, then there is an opportunity for the UK fintech sector to continue to grow and thrive following Brexit.
Finally, it is also worth noting that the fintech UK has always had a strong ecosystem. This is down to a number of factors, including having good and solid infrastructure already in place, a deep understanding of the industry, and a willingness to continue to innovate and develop fintech. In fact, Brexit provides the UK with a fantastic opportunity to change its financial regulation, which could help make the country even more appealing to fintechs.
Although the winners and losers of trading venues has been a focus for many in the aftermath of Brexit, these volumes overlook the hybrid models that are being created between London and other key European, and international markets. Today, there is more focus on global connectivity, reducing silos and increasing business resilience. Cloud and SaaS models will continue to be key to supporting customers, wherever they are in the world, regardless of borders.
As such, while both Brexit and the COVID-19 pandemic have presented numerous challenges, their combination has created a great opportunity for the UK’s fintech industry to continue to thrive and for the UK to remain an unquestionable leader when it comes to fintech.
Dima Kats, CEO of global payments company Clear Junction, discusses some of the unforeseen complications of Brexit and the possible solutions.
As people increasingly live and work across borders, there is a greater need for money to move freely too. But what happens when the nature of one of those borders changes? Following the UK's recent departure from the European Union (EU), there has been a shift in some financial institutions' behaviour within the EU. Specifically, in the processing of Single Euro Payments Area (SEPA) transfers.
Organisations within the UK are still learning the full impact of the UK's recent Brexit deal. However, over recent weeks, corporations making SEPA payments from accounts in the UK to the EU are experiencing additional fees and payment refusals.
Starling Bank recently noted that several companies across Europe have been refusing to accept direct debit payments from some Starling euro accounts because they contain the country code ‘GB’.
It is important to note that the UK is still a SEPA member and that even though the UK is no longer part of the EU, it is still very much part of the Single Euro Payments Area. Refusing to accept payment from the IBAN code of a SEPA member is a violation of EU rules.
Some European banks, notably in Spain and Italy, have introduced recent charges to payments coming from or going to the UK. These new fees can vary from an €18 flat charge to a percentage of the amount shared or received, ranging from 0.3-0.5%, which can add up to a significant figure.
Refusing to accept payment from the IBAN code of a SEPA member is a violation of EU rules.
While this situation has understandably caused some consternation, the UK's continuing membership of SEPA means we believe these rejections are temporary outliers. Indeed, this is merely one of several hiccups because of the regulatory changes. We are still experiencing the aftershocks of Brexit across Europe and will continue to do so for a while. However, in the coming months, we should see a more standardised approach emerge across EU financial institutions, with less disruption to providers and consumers as awareness of the new regulations increases.
Despite the litany of recent Brexit plans formulated by governments and negotiators, none explicitly addressed the fintech industry. Fintech professionals understand the challenges of building relationships and facilitating seamless transactions between institutions. The smooth operation of these processes, established over several years, was hard-won, and it is unlikely that the industry wants to rewind the clock to how things were before SEPA. The mutual participation in the clearing schemes in Europe and the UK has worked well and it would be counterproductive to change this because of Brexit.
We can only praise the European Central Bank’s initiatives to have the UK remain part of SEPA. This decision, taken two years ago, has contributed to the peace of mind of many fintech professionals in relevant countries. As a result, we hope there will be minimal impact on the clearing schemes' operational process in the coming months.
Currently, regulatory frameworks between the UK and the EU are aligned, and there is no reason for extra fees. Which leaves us wondering what consumers and institutions should do if they do face any additional charges?
As a first step, consumers need to be aware of what is going on and any potential issues. Some banks, such as Starling and Revolut, have already taken proactive action in this area, but more widespread initiatives would be welcome.
For the consumer, there are currently no easy, off-the-shelf solutions. This complexity means that people need to speak to their banks in the first instance and then the local regulator to add pressure and make local banks comply with the SEPA scheme rules.
What would be useful here is the increased provision of easy-to-access and easy-to-use tools, documents and templates for consumers to share with the EU banks they are dealing with that may be implementing additional fees. The right way to address this situation is to give consumers that power.
For financial businesses who are unclear of regulatory frameworks post-Brexit and what this means for their customers, they should work closely with a regulatory services provider that is a participant member of SEPA, enabling clients to have unrestricted access to the EU interbank clearing system.
At Clear Junction, we value our SEPA membership highly and recognise its vital role in simplifying payments across Europe. We want to see common sense prevail and hope that Brexit has no lasting impact on the future of SEPA payments.
UK exports of goods to the European Union (EU) fell by a record margin at the start of the year as Brexit came into effect.
Exports to the EU fell by 40.7% in the first month since leaving the EU, the equivalent to a £5.6 billion loss in trade, the Office for National Statistics (ONS) revealed in figures released on Friday.
Imports from the EU also suffered, falling 28.8%, or £6.6 billion. The losses seen in both EU exports and imports represent the greatest monthly falls seen since records began in 1997.
The slump occurred as Brexit took effect on 1 January 2021, marking the UK’s official exit from the single market and the implementation of new trading rules and customs checks. It also coincided with the UK’s third national lockdown amid accelerating COVID-19 cases, further exacerbating the trade slowdown.
Exports of food and live animals – particularly seafood and fish – were the hardest-hit by the disruption, plunging 63.6% in January. However, the sector counts for only 7% of total UK exports. Overall, global UK exports and imports fell by around a fifth at the beginning of the year.
Although the fall in exports was historic, the decline did not reach the 68% plunge that road hauliers had expected to face. January’s GDP figure also represented the UK’s largest economic contraction since the beginning of the pandemic, but did not fall as much as the 4.9% anticipated by analysts.
The lack of a greater decline in GDP is believed by some analysts to suggest that businesses and households have adapted better to lockdown restrictions than they had prior to April 2020, when GDP fell by more than 20% as the first lockdown measures were imposed.
The past year has been one like no other for the UK. We are adjusting to a new way of life, having spent the best part of a year under pandemic restrictions. It was also the year that we left the European Union for good, after four years of political friction and confusion. These once in a lifetime events have understandably impacted our personal and professional lives. Financially, the effect of the pandemic has resulted in the prediction that a fifth of all small businesses will collapse in the UK, and recent news that we may be plunged into a double-dip recession suggests that we are not over the worst of it. Business leaders have had to adapt and re-adapt to survive the past year, and the world of work will look different as we move forward.
Brexit has also had an impact on jobs and the way we work. Alongside further economic uncertainty, there is set to be an increase in the difficulty of importing EU-based talent as Brexit brings in more stringent rules around work and immigration. While the rules are designed in part to allow highly-skilled workers the opportunity to come to the UK, they may be put off by changeable legislation and red tape, leading to talent shortages in key sectors.
The double hit of Brexit and coronavirus has already highlighted the importance of malleable work environments – businesses will only survive this period if they are truly flexible and willing to adapt. Research from Future Strategy Club shows that 29% of business leaders streamlined their teams during the pandemic, and thousands of businesses have given up office spaces as employees work effectively from home. Firms are having to adapt to new regulations and legislation, making way for a more flexible design, both in terms of physical space and headcount.
EY estimated that due to Brexit, £1.2 trillion in assets have been moved from London to the EU, along with around 7,500 jobs.
One way that business leaders are becoming more flexible is by utilising short-term, freelance talent, as opposed to hiring full-time, permanent talent for roles that may soon change or become defunct in such a rapidly changing environment. Often, these leaders don’t just need advice on how to see their firms through these unprecedented times but require a hands-on approach to guide them through. With new rules and restrictions in place as we leave the EU, a short-term, outside consultant can bring a fresh perspective to struggling businesses, and integrate a new, more flexible ethos to firms who are looking for the best way to accommodate new business models and legislation. In a time of economic turmoil and uncertainty, funds and resources may be low, utilising freelance talent also allows firms looking for specific talent to find it quickly and without breaking the bank.
However, finding the right talent for your company can be difficult. Many companies are hiring the same standard consultants and creatives from the same consultancies and agencies who use the same methodologies that have been used for the past 30 to 50 years - and are therefore getting the same solutions to their problems as their competitors and everyone else. Platforms such as Future Strategy Club have a curated selection of the most innovative talent in the world, available without the usual overheads and contractual entanglements that large consultancies and agencies wrap around their talent. These platforms allow businesses to directly access experienced individuals with many years' worth of skills to tap in to, having weathered the 2008 crisis, COVID-19, and now Brexit.
The freelance and gig economy works the other way, too, in that it provides a chance for those who find themselves furloughed or perhaps made redundant to launch their own business or at least the next stage in their careers. EY estimated that due to Brexit, £1.2 trillion in assets have been moved from London to the EU, along with around 7,500 jobs. Combined with increased job losses and furlough due to the pandemic, many people are likely to be uncertain about their career prospects. Those who may find themselves being made redundant or furloughed may choose to capitalise on their skills and past experience to launch a freelance career – as with kids and mortgages in tow, falling back to the bottom of the career ladder is not on the agenda.
Freelancing and the gig economy often get a bad rep. Freelancers have been excluded from the benefits of the permanent workforce - including workplace culture, socialisation and support networks - and it is clear that the perception of freelancers and skilled consulting work has long needed an overhaul. Fortunately, this appears to be changing. The rise of co-agencies, such as Future Strategy Club, provide freelancers with resources, learning and development opportunities and a network, making freelancing a viable long-term option – one that can be done for an entire career, as opposed to a placeholder between jobs.
It’s clear that the world of work going forward is going to look very different. 2020’s turbulence is set to carry on over to 2021, and businesses and talent that can utilise this to their advantage will thrive. Businesses who open up to hiring freelancers are more likely to adapt and may even come out of this period stronger than they were before, and entrepreneurial freelancers have the opportunity to work for themselves, choose their own working environment and gain true security from their own knowledge and skillset.