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The deal that the UK Government secured with the EU, right at the end of the tumultuous year that was 2020, came as a surprise, and some considerable relief. At Amaiz, we spent part of December looking into the impact of Brexit, particularly on financial services and published a report on our findings, so we were probably more aware than most what the deal needed to deliver for FinTech.

We had years to prepare for Brexit. Whilst some stakeholders needed some convincing that the referendum in 2016 represented a final decision that couldn’t be reversed, the rest of us knew that somehow, the Government would feel compelled to deliver on the result. One way or another we would be exiting the EU so only the foolhardiest of companies would not have prepared. The results of our research in December showed that people were as ready as they could be:

The changes that company leaders believed would have the most impact were changes to regulations (37.4% of respondents said this was a concern), increased costs of doing business (37.2%), and reduced access to suppliers (35.5%). Overall, 57% of companies believed that Brexit will have some negative impact on their business and some (6.6%) believed it will destroy their business.

Size was a big factor in how prepared companies were for the changes – with smaller companies employing between 1 and 10 people concerned about increased costs (45.7%) and those with staff of between 11 and 50 about taxes and VAT (41.3%).

The challenge in December was the uncertainty that remained right up until the deal was announced. How can you prepare effectively when you don’t know what you’re preparing for?

Financial services represents 12% of the UK’s GDP and our vibrant FinTech startups and smaller businesses are a key part of that. It had been a success story, that has taken advantage of the cultural, regulatory and geographical advantages that the UK enjoys. It is the startups that drive innovation in the sector and create the global players of tomorrow.

In December, the financial services sector was preparing for a no-deal Brexit, as that appeared to be the most likely outcome. The larger companies had already registered companies and offices within the EU so that they could continue trading there, whatever deal was or wasn’t struck. At Amaiz, we were in a position to take this route ourselves.  However, this was not an option for much of the vibrant FinTech community, it was not within their resources, particularly as there was no certainty on what Brexit would mean.

Of course, at the same time as this Brexit uncertainty, our FinTech startups and smaller companies were battling with the impact of the pandemic. The FCA (the Financial Conduct Authority) and FSB (Federation of Small Business) both published figures in January that show the alarming impact of the pandemic on SMEs. The FCA found that 59% of smaller financial firms expected that their profits would take a hit this year[1]. The FSB found that just under 5% of smaller companies expect to be forced to close within 12 months, the largest proportion in the history of the Small Business Index and could mean that 295,000 companies will go under[2].

Brexit, therefore, came at a critical time for all companies and most SMEs in December (62.4%) told us that the pandemic was likely to affect them more in 2021 than Brexit (17.3%).

If FinTech is to survive the many challenges that this year brings, the Government needed to deliver a deal that gave financial services the ability to operate across the EU. That didn’t happen.  Instead, the Brexit agreement created a distortion in the market that threatens UK FinTech still further.

Following the deal, EU FinTech companies can operate in the UK, and there are many companies eyeing up the UK market, particularly FinTech companies based in Amsterdam and Germany, so our FinTech will be in competition with them. However, as e-passporting has not been agreed, our UK companies cannot now operate in the EU. I have seen no evidence that the Government has recognised this as a priority issue to resolve. I urge them to do so as the consequences for the sector and the UK economy will be enormous.

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The report, Brexit Brink: Are British SMEs about to fall off the edge of Europe – or building new bridges? is based on a survey of SMEs across the UK and is free to download from www.https://journal.amaiz.com/amaiz-guide/.  

[1] https://www.reuters.com/article/us-health-coronavirus-britain-markets/up-to-4000-financial-firms-could-fail-due-to-covid-says-uk-regulator-idUKKBN29C0R7?edition-redirect=in

[2] https://www.fsb.org.uk/resources-page/at-least-250-000-uk-small-businesses-set-to-fold-without-further-help-new-study-warns.html

In the accounting market, standards such as the IFRS and whether businesses will continue to follow these will have long-term implications for investors, auditors and business leaders alike. This could make the UK more attractive to foreign investors or put firms at risk of having to follow two sets of rules if they trade continentally.

After a Parliamentary committee ordered the separation of auditing and consulting services in the Big Four firms, the FRC came under threat as the Government tried to show its teeth in governing this area.

However, with Joe Biden looking to have a closer relationship with Europe, it looks increasingly likely that to remain a globally facing country that acts as a bridge between Asia, Europe and North America, the UK Government may need to deal with the Big Four and this issue and bring governance more in-line with their European and American counterparts.

The general market will have a huge part to play on whether or not national entities decide to take action in the regulatory space. A huge part of the accounting space moving forward will be increased by Mergers and Acquisition deals, despite a relatively slow year. According to S&P Global Platts, in the US, during the first three quarters of 2020, the industry saw 81 deal announcements worth a total of US$7.75bn; this is compared to 200 deals worth US$47.05b over the same period in 2019.

Despite a bleak year, the market appears to be surprisingly optimistic. According to a poll of executives and M&A professionals, 87% of respondents said they expect M&A activity involving privately-owned companies to increase in 2021. The poll, conducted by law firm Dykema Gossett PLLC, also revealed that more than seven out of 10 respondents expect to close a deal during 2021 and 71% believe that the market will strengthen.

Part of this strengthening deal flow attitude is due to the broader economic recovery and confidence in the market as a whole. In its latest World Economic Outlook, the International Monetary Fund (IMF) predicts the global economy to experience a partial rebound to 5.2% growth in 2021. In Dykema Gossett PLLC’s survey, respondents are optimistic about the economy. Six in ten said they hold a positive view of the economy over the next 12 months; 17% hold a negative view, and the remaining 23% held a neutral view.

This is also set to be boosted by an ever-increasing promised financial stimulus from new US President, Joe Biden. In the week that Biden was announced as the winner of the 2020 election, share prices were boosted by the largest growth in two months as a Democratic President would result in a major new stimulus package. London’s FTSE 100 closed up by 131 points, or 2.33%, at 5786. Furthermore, all three of the leading barometers of US share prices – the Dow Jones Industrial Average, the S&P 500 and the Nasdaq – were showing gains on the morning of election day in the US.

These market indicators and supposed optimism for 2021 demonstrate a new market for business and, in turn, for the accountancy space. There has been a huge amount of scrutiny over auditing practices and services sold to clients that may have a conflict of interest, so for firms that can solely focus on high-value deals, the market looks bright. Despite this, there will have to be additional movement as gaps appear to vacate (especially the Big Four). For example, in mid-November, PwC sold off its FinTech business amid greater regulatory scrutiny on conflicts of interest. This could give other mid-tier and boutique firms the opportunity to gain market share, as the Big Four focus on auditing and legal services, especially in the non-auditing space.

According to Financial News, the FinTech eBAM, which has been rebranded as LikeZero, automates regulatory risk analysis for around ten of the City’s largest financial firms and is to be acquired by its management in a deal backed by two private equity firms. PwC is not allowed to sell its own technology to their audit clients as per restrictions introduced by the Financial Reporting Council. In 2016, the FRC restricted Big Four firms from providing audit clients with financial technology as part of an effort to reduce conflicts of interest within the audit sector. This deal could be the first of many as the Big Four firms leave spaces that it has previously tried to dominate.

I predict that with the FRC trying to tighten regulations in the auditing space, the Big Four will try and expand their non-auditing services such as legal and digital services to maintain their revenues, regardless of whether the FRC is successful or not. However, many mid-tier firms are already there and, in this space, so there will be more competition than ever before. This could lead to a break-up of the market and if other big-name collapses take place, more large companies in the FTSE250 space will begin to move away from the established Big Four.

Credit card giant Mastercard is set to increase the fees it charges EU merchants for taking payments from online shoppers in the UK by at least 400%, sparking fears that merchants could choose to pass on these costs to UK consumers.

The Financial Times, which first reported Mastercard’s latest move, said that the increase would benefit banks and card providers rather than Mastercard itself.

Since 2015, the European Commission has capped credit card interchange fees at 0.3%. Now that the UK is no longer part of the EU, however, payments between the UK and the European Economic Area are now deemed “inter-regional”, so the interchange fees will increase to 1.5%.

The fee for debit card payments is also slated to rise from 0.2% to 1.15%. Both fee increases are set to take effect on 15 October.

MP Kevin Hollinrake, chair of the parliamentary group on Fair Business Banking, said the move “smacks of opportunism.”

"I would urge the regulators to step in as a matter of urgency to ensure that financial institutions do not use Brexit as an opportunity to hike up costs that consumers will ultimately bear," he said in a statement to the FT.

Anton Komukhin, Head of Product, at Unlimint, also expressed concern. "The increase in fees announced by Mastercard for UK purchases from the EU will definitely be a challenge for businesses on both sides (both EU and UK) and such a significant increase in price will undoubtably impact trade with the UK," he said. "It’s obvious that such a reaction is not aimed at maintaining cross-border turnover or trade -  and looks only like an attempt to make more money from merchants in an already challenging environment due to Brexit and the pandemic."

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Mastercard has defended its decision, pointing out that the new interchange levels are already paid by EEA merchants on all cards issued outside of the EU, and that there is no evidence that European businesses charge consumers in these regions higher prices than those levied for consumers within the EEA as a result of this.

"In practice, only EEA merchants making eCommerce sales to UK cardholders will see a change,” the firm said. “Interchange is not a consumer facing cost but the fees paid between merchants and banks for the provision of payments. Consumers should not feel any impact of changes in interchange fees.”

This latest change comes as UK businesses face a number of new hurdles stemming from the country’s withdrawal from the EU. Increased red tape has led to delays in goods imports and exports, and the trading of European shares has moved away from London due to new restrictions.

Finance Monthly hears from Stuart Lane, CEO of Trade Nation.

2020 was an extraordinary year for traders as the coronavirus spread across the globe, triggering worldwide lockdowns and restrictions and bringing unprecedented volatility to the markets. And while the effects of the pandemic are still far from over, 2021 is set to look very different. Not only do the new vaccination programmes give hope for an eventual return to normality, but we will also see how major political changes play out, such as Brexit and Joe Biden’s first year as President of the United States.

For traders hoping to get ahead of the markets in 2021, here are five key areas for them to keep their eyes on over the next twelve months.

Brexit

With Brexit now pretty much done and dusted, we may see the pound sterling continue to recover from the lows seen last March. However, the big question is whether its strength will hold back possible gains made on the FTSE 100, which has been lagging behind US indices and the German DAX — both of which recently hit record rights. The FTSE, on the other hand, is still more than 12% below the highs experienced in early 2020.

It’s commonly believed that sterling strength weighs heavily on the FTSE due to the fact the majority of the index’s constituents export goods abroad. The higher the value of sterling, the more these goods cost foreign importers, which in turn means less are sold.

Biden Presidency

On the first full trading day of 2021, all five of the major US tech giants (Alphabet, Apple, Amazon, Facebook and Microsoft) — which have effectively driven the extraordinary rally in the US stock indices since the pandemic lows of last March — were down 1.8-2.2%. This is because it looked like the Democrats were about to win control of the Senate, giving the party a clean sweep: Presidency, Senate and House.

As it turned out, the Democrats did win those two vital Senate seats in Georgia. For now, the Republicans have no majority anymore. It also means that Vice President Kamala Harris has the deciding vote whenever there’s a 50:50 Senate split. The Democrats now have the clean sweep they were hoping for, making them much more likely to pursue a radical programme of high spending reforms. This has gone down well with investors who have already rushed to buy stocks, pushing all the major US indices to fresh record highs.

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The Future of Retail

The high street changed beyond recognition in 2020, although it’s well-known that the move away from bricks and mortar to eCommerce was already well-advanced. Now, old-style department stores which were once the foundation of every mid-sized town shopping centre look unlikely to survive. Therefore, a strong online presence is vital for retailers. There will be considerable pressure on the UK government to get involved and save the high street. But will this mean a shake-up on things like business rates and rents, or a lazier approach that simply involved dishing out temporary relief?

As we have seen from early reports on holiday-period spending, food retailers continue to perform well, as do online retailers. But following a boost to high streets in early December, footfall collapsed before Christmas as fresh COVID-19 restrictions were brought in. It’s now reported to be down by 43% in 2020 compared to the previous year. The big question is whether this misfortune will reverse once restrictions are lifted, or will the hope offered by vaccination programmes come too late to save many of our high street favourites?

Technology

When it comes to technology, perhaps the most exciting thing for traders to follow are the advances in medical tech. The mRNA vaccines are a massive development; a new method of vaccine production that will help bring fresh vaccines to market much faster than was previously possible. Also, mRNA vaccines can be adapted quickly and cheaply to address new virus variants, thereby opening up the prospect of vaccines for previously untreatable conditions too.

Elsewhere in tech, Tesla’s stock price soared to a fresh record high in the first week of 2021, making founder Elon Musk the richest person on the planet — overtaking Amazon owner Jeff Bezos. Many analysts continue to insist that Tesla, along with Bitcoin, is in an unsustainable bubble, and one day all those paper-millionaire investors will wake up broke. But for now, the owners of Tesla shares and Bitcoin are laughing the loudest.

‘Ethical’ Stocks

Ethical investment could be one of the biggest buzz areas in 2021. The sector has matured to a great extent, so ethical investment no longer means merely pruning portfolios of defence, tobacco, oil, and mining stocks. Now, there is a large and expanding ‘green’ industry to consider. Last year the UK saw more than $4 billion put into funds claiming to focus on ESG — environmental, social and governance investing. However, not all funds are the same, and careful diligence must be taken to separate those with a genuine will to manage their businesses ethically, and the bandwagon jumpers.

We are already seeing a rise in ethically questionable investments too, water being the most notable. CME Group has recently started offering water futures, and this is also relevant to farmland which is a very big consideration in the US. In fact, these are both areas in which Michael Burry (of The Big Short fame) is now heavily invested. Will more traders now be tempted to follow his lead? Only time will tell.

Dion Travagliante, Head of North America at Hoptroff, outlines the importance of MiFID II compliance in ensuring UK firms remain internationally recognised.

Announced on Christmas Eve, the Trade and Cooperation Agreement – better known as the ‘Brexit Deal’ – leaves lots of question marks for those in financial services. Before anything else can be decided, the EU must first accept that Britain’s financial regulations are “equivalent” to those in the European Union: the Markets in Financial Instruments Directive (MiFID II).

Since its implementation in January 2018, MiFID II has transformed financial services with policies that promote transparency and trust across processes within the industry. As Britain navigates a new economic arena, many are hoping to avoid further instability by conforming to the existing internationally respected regulations.

Synchronising time under MiFID II

The MiFID regulations were implemented after the global financial crash of 2008 for a very simple reason: to prevent another crisis. The rules cover areas of financial practice that most people have never even considered. This means that British businesses are currently following an extremely clear and thorough guidebook that protects them from financial damage.

The rules on time synchronisation are one notable example of this. Accurate time is at the heart of electronic trading – but all clocks naturally drift. It might not matter if the time on your phone is a few seconds out, but it does matter if the time is wrong on a busy server that transfers thousands of pieces of data every second of the day. If your server’s clock is wrong, data logs can become confused, transactions may be cancelled, and you will be vulnerable in the event of a dispute.

Accurate time is at the heart of electronic trading.

This is where MiFID II comes in. Article 50 restricts every server that is an active market participant to a maximum divergence of between 100 microseconds and 1 millisecond (depending on the type of trading) from the benchmark of UTC (Universal Time).

MiFID II is vital in protecting the best interests of British businesses, but the importance of the regulations go even further. As British financial services look to recover from the shock of the COVID-19 pandemic, Britain must do everything it can to stabilise its position in the global economy.

Amending MiFID II is a threat to this stability, as international trust in a country’s financial market is dependent on the extent of its regulations. This was made evident last February when the pound dropped sharply against the US dollar following suggestions of a MiFID “shake up” by the ESMA.

Smarter regulating solutions

In the past, some groups have been resistant to upholding financial regulations because it has been expensive to do so. To get precision timing, companies had to install and maintain a satellite receiver at every active trading venue, secure access to a grandmaster clock, and spend resources on monitoring and verifying their data logs.

Recent technological developments have made this reluctance redundant. Smarter solutions have entered the market that make carrying out the best financial practice a lot easier and more cost-effective. Traceable Time as a Service (TTaaS) is the premier network-delivered solution for time synchronisation. The software product synchronises your clocks and monitors data for you; no hardware or maintenance is required.

Financial firms across Britain have spent the past three years implementing processes that adhere to MiFID II. Instead of “shaking up” the rules once again, consistency is needed as the industry moves forward.

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Ever since its inception, MiFID II has played an essential role in rebuilding trust in the financial markets. Regulations like those placed on time synchronisation ensure that these markets are both reliable and protected and they have never been more easy or cost-effective to implement. This trust is something that Britain should not take for granted as the world enters an extremely turbulent economic period.

2020 has been a turbulent year for businesses across the world but as we reached the end of December, there has been some hope for those in the Mergers and Acquisitions (M&A) space. Figures published by the Office for National Statistics (ONS) revealed that, in the three months to the end of September, the value of deals in which one UK company acquired another rose to £4.4bn. This is an increase of £400m in the April to June quarter and £3.2bn from January to March. Across the same period, the value of deals done in which a company from abroad bought a UK business rose to £2.9bn, up from £2.1bn during the previous quarter.

Globally, the market has shown signs of rapid recovery due to the announcement of the COVID vaccine. In fact, companies across the globe announced almost $40bn worth of deals on the day that Moderna revealed trial data that showed its COVID-19 vaccine was highly effective, a week after similar news from Pfizer and BioNTech. According to the FT, this was a clear sign that chief executives are looking to tap cheap debt or use cash stored away during the crisis to carry out strategic M&A. Markets were also buoyed in the same period due to the conclusion of the US presidential election.

M&A deals have slowed during 2020; a year dominated by a global pandemic with reduced investment flowing towards COVID-specific assets classes such as personal protective equipment (PPE), remote working and learning solutions, and back-office technology and infrastructure for firms moving online. According to S&P Global Platts, in the US during the first three quarters of this year, the industry saw just 81 deal announcements, worth a total of US$7.75b; this is compared to 200 deals worth US$47.05b over the same period in 2019.

Despite a bleak year, the market appears to be surprisingly optimistic. According to a poll of executives and M&A professionals, 87% of respondents said they expect M&A activity involving privately-owned companies to increase in 2021. The poll, conducted by law firm Dykema Gossett PLLC, also revealed that more than seven out of 10 respondents expect to close a deal during the next year and 71% believe that the market will strengthen.

In fact, as we head towards the end of the year and Brexit, along with a recovering global economy, there are reasons to be optimistic for the M&A market, including distressed opportunities, cheap debt, new regulation and expansion into secondary market by global firms.

Part of this strengthening deal flow attitude is due to the broader economic recovery and confidence in the market as a whole. In its latest World Economic Outlook, the International Monetary Fund (IMF) predicts the global economy to experience a 4.4% contraction in 2020 and a partial rebound to 5.2% growth in 2021. In Dykema Gossett PLLC’s survey, respondents are optimistic about the economy after the US fell into recession earlier this year. Six in 10 said they hold a positive view of the economy over the next 12 months; 17% hold a negative view, and the remaining 23% held a neutral view.

One strategy is to be aggressive and make acquisitions happen whilst the market is opportune. The other is to sit tight and wait until things normalise.

This is also set to be boosted by a new US President, Joe Biden. In the week of the US election result, share prices were boosted by the largest growth in two months as a Democratic President would result in a major new stimulus package. London’s FTSE 100 closed up by 131 points, or 2.33%, at 5786. Furthermore, all three of the leading barometers of US share prices – the Dow Jones Industrial Average, the S&P 500 and the Nasdaq – were showing gains on the morning of election day in the US.

The M&A market is not only driven by sentiment but also investment into Small and Medium Enterprises (SMEs); a sector that has been hit hard by COVID. However, with a variety of stimulus packages delivered across the globe, large firms have the ability now to take advantage of the environment as we move into 2021. For example, at this moment in time, there are many distressed opportunities. With businesses laying off employees and the unemployment rate in the UK set to hit 2.6 million according to the Bank of England; larger firms have the ability to pick-up intellectual property and infrastructure from struggling firms.

As an expert in helping growing companies secure finance, here are the two approaches that I have seen companies taking and why now is an opportune time M&A.

As an investment banking firm with offices in London and Canada, specialising in M&A, capital transactions and corporate advisory, we are seeing two distinct strategies being utilised amongst our clients.

One strategy is to be aggressive and make acquisitions happen whilst the market is opportune. The other is to sit tight and wait until things normalise.

The former option is proving to be a popular one and there is a strong case for making acquisitions during this COVID-19 induced downturn in the economy. There are five reasons why companies should be considering acquisitions as a growth strategy during this COVID economy.

Acquiring during a downturn has historically produced greater total shareholder returns (TSR). A recent study performed by EY and Capital IQ indicates that companies making acquisitions that totalled 10% or more of their market cap in the 2008 downturn created 5% more TSR over three years than those who did not.

Done properly, strategic acquisitions that serve as a platform for long-term success via revenue, customer and asset growth, will provide the acquirer with the ability to capture above-market returns when market conditions begin to stabilise and grow.

When using debt to finance an M&A transaction, it becomes more affordable when interest rates are low. As I write this, the Bank of England’s base rate is at 0.1%, which means debt financing in the UK has never been cheaper. This low-interest-rate environment has a wide number of implications, the majority of which I will not get into, however, it does translate into a higher capacity for acquirers to service debt, thereby making M&A deals more feasible from affordability, size and aggregate basis.

Using the financial crisis of 2008 as the most recent comparison to what we face today, M&A valuations decreased by approximately 27% during that time. As such, companies making acquisitions during this period observed substantial discounts to market value. When companies, divisions and assets can be purchased for below-market pricing it creates immediate value for the acquirer.

According to the United States Small Business Administration, 90% of businesses fail within two years after being struck by a disaster. When we compare this to the economic impacts of COVID-19, it is certain that many businesses are going to be irreparably damaged. Furthermore, businesses that fail to adopt new technologies and ways of operating in this environment will only fall further behind. As a result, companies and ownership groups who have been negatively impacted by COVID are likely to be open to acquisitions, which can likely be acquired with favourable terms and valuations.

Having excess liquidity on the balance sheet without effective utilisation does not create increased shareholder returns. Therefore, when companies are sitting on excess liquidity it is important to ensure cash is utilised in a manner that is going to generate above-market shareholder returns such as strategic M&A transactions at below-market valuations.

For companies that have confidence in the post-COVID recovery dynamics of their industry and are looking to add strategic value, the time is now to make acquisitions.

Nearly €6 billion of EU share dealing was moved away from London on Monday as the effects of Brexit compelled equities trading to shift to EU cities, the Financial Times reported.

Trading in equities for the likes of Deutsche Bank, Santander and Total moved to exchanges in mainland capitals – primarily Madrid, Paris and Frankfurt. London’s Euro-dominated share trading hubs, including Cboe Europe, Aquis Exchange and Turquoise, shifted to newly established venues in the EU. The volume amounted to about a sixth of all equity business on European exchanges on Monday.

The change came abruptly for London investors, who were previously able to trade shares in Europe across borders without restrictions. Now, EU-based banks and asset managers will be required to use a platform inside the bloc for Euro share trading.

The shift in equity trading is far from the only effect that Brexit is set to have on London markets. The Brexit deal agreed before Christmas does not cover financial market access, with EU regulators refusing to recognise the bulk of the UK’s regulatory systems as “equivalent” to its own.

Temporary measures were put in place before the exit to allow UK financial firms to use venues in the EU.

“The FCA continues to view the agreement of mutual equivalence between the UK and EU as the best way to avoid disruption for market participants and avoid fragmentation of liquidity in DTO products,” the FCA said, adding that it will consider by 31 March “whether market or regulatory developments warrant a review of our approach.”

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Also on Monday, EU regulators withdrew the registration of six UK-based credit rating agencies and four UK trade repositories, compelling EU companies to use EU-based entities for information on derivatives and securities financing trades.

Paresh Raja, founder and CEO of Market Financial Solutions, offers Finance Monthly his predictions for the UK property market in the new year.

2020 has been, by far, one of the most impactful years of the last couple decades. COVID-19 has had a sizeable impact on the world economy, national governments, and health systems around the globe. No industry, nation, or continent has been exempt from the virus’s economic and epidemiological affects, and we are all now beginning to understand the long-lasting changes that have been brought about by the pandemic.

Despite all of these challenges, it is important not to let these developments overlook the successes of 2020. While some industries have struggled, other sectors like property have been able to quickly recover. In fact, one could argue the real estate market is the strongest it has been since the EU referendum in June 2016.

In my mind, the positive performance of bricks and mortar will continue in 2021. As such, now is an ideal time to take a step back and consider just how investors and prospective buyers can take advantage of property investment over the coming 12 months.

A standout performer of 2020

Of all the positive developments witnessed in the UK this year, the ability of the real estate market to sustain a consistent rise in transaction numbers and house prices should be applauded. However, it was necessary for the market to also recover from the initial disruption caused by the first lockdown.

Obviously, property professionals were concerned during this initial stage of the pandemic; with the UK government actively dissuading people from moving home. Lenders retreated from the market, and this resulted in buyers turning to specialist finance providers to complete on sales and prevent existing transactions from collapsing.

Of all the positive developments witnessed in the UK this year, the ability of the real estate market to sustain a consistent rise in transaction numbers and house prices should be applauded.

In May, the government announced that people could once again move home, and that those who worked in the property sector could go back to facilitating transactions. However, in a bid to further incentivise buyers and sellers back to the market, in July the government offered the real estate sector another helping hand.

8 July saw the introduction and implementation of the stamp duty land tax (SDLT) holiday. This means that buyers could now save up to £15,000 when purchasing a new property in England or Northern Ireland. Those who were skittish about completing a property transaction during a pandemic were incentivised back to the market, resulting in a new wave of transactional activity which has been maintained up until today.

Transaction numbers began to grow, and house price indexes recorded a rise in the value of British property for the first time since the 2016 EU referendum. Nationwide, Halifax and Rightmove recorded house price growth between January and November 2020 of +6.5%, +7.6% and +5.5%, respectively.

However, although buyers were keen to take advantage of the SDLT holiday, another obstacle stood in the way of many. In a bid to minimise risk exposure, mainstream lenders are still hesitant when it comes to lending. Some have tightened their lending criteria; others have taken financial products off the shelves, and it is being reported that the time it is taking to deploy loans is increasing.

There is clear buyer appetite for property, and I believe this will be the case so long as the SDLT holiday remains in play. For this reason, property investors and brokers must familiarise themselves with all their finance options, looking beyond mainstream lenders and mortgage providers.

The rise of specialist finance

A survey from September commissioned by Market Financial Solutions found that 52% of the homeowners were keen to take advantage of the SDLT holiday but were put off by the increased likelihood of being denied the necessary financing.

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Prospective buyers whose transactions were at risk of collapsing from a delay in the deployment of their mortgage have, in turn, been looking to alternative lenders. These lenders typically have access to in-house credit lines and can tailor loans to meet the unique circumstances of each buyer. As a result, specialist finance products such as bridging loans can be deployed within a matter of days.

As we enter into 2021, I can only imagine that this trend will continue. The scheduled end of the SDLT holiday on 31 March, combined with the implementation of an overseas-buyer 2% SDLT surcharge on 1 April, means there is likely to be a rush from buyers looking to complete on transactions before these dates.

From reviewing their performance this year, there is a risk that mainstream lenders will struggle to ensure that financing is deployed in time to finalise transactions before these two deadlines. As such, there is a growing case for prospective buyers to seek out mortgage alternatives, such as fast loan solutions.

An optimistic outlook for 2021

Looking to the coming 12 months, it is clear that property investment will play a defining role supporting the post-pandemic recovery of the UK economy. The SDLT holiday has been a success, and there is clear buyer appetite for bricks and mortar. For this reason, it makes sense for buyers and brokers to also familiarise themselves with alternative loan options. Doing so will ensure they can confidently complete on transactions without delay.

More than 30 countries have imposed travel bans on the UK after a new strain of COVID-19 – which may be as much as 70% more infectious than the original strain – was detected in the country. Nations closing their borders include France, Germany, Italy, the Netherlands, Austria, Belgium and Israel.

Some of the travel bans imposed on the UK will last for 48 hours as leaders formulate plans to contain the spread of the mutant COVID-19 strain, while others are set to last until the end of January.

The news has caused immense disruption to accompanied UK freight, with the immediate future uncertain for the 10,000 lorries that pass through Dover each day. British supermarket group Sainsbury’s warned on Monday of fresh produce shortages if transport between the UK and Europe is not quickly restored.

The FTSE 100, London’s blue-chip index, fell as much as 2% on the open with British Airways owner International Airlines Group and Rolls-Royce down 16% and 9% respectively. As much as £33 billion was wiped out from the index’s shares.

Germany’s DAX fell 2.3%, France’s CAC 40 fell 2.4%, and the pan-European Stoxx 600 fell 1.8%, with travel and leisure stocks taking the brunt of the sell-off.

While the FTSE’s losses fell to 1.1% by the end of the first hour of trading, the impact on sterling was more extreme. The pound, which last week reached a two-year high, plunged as much as 2% to $1.3259 and 1.6% to €1.0864.

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The impact on the pound was aggravated by continued uncertainty as to whether the UK will secure a Brexit deal ahead of the end-of-year deadline, after which existing trade stopgaps with the EU will no longer remain in effect.

The value of the pound sank precipitously on Friday, falling by more than 1% against the euro and the dollar after UK prime minister Boris Johnson’s warning on Thursday that a no-deal Brexit remained a “strong possibility”.

Sterling fell 1.3% against the euro to €1.089 and against the dollar to $1.3204 in early London trading.

The pound has been under continuous pressure since Wednesday, when Johnson and European Commission president Ursula von der Leyen confirmed that “significant differences” were yet to be bridged after trade negotiations in Brussels.

The UK and EU are currently deadlocked over questions of their post-Brexit relationship, with main sticking points including competition rules and fishing rights in UK waters. The two sides have set a deadline of Sunday to reach an agreement and prevent a “no-deal” scenario that would likely cause economic chaos.

"We need to be very, very clear there's now a strong possibility that we will have a solution that's much more like an Australian relationship with the EU, than a Canadian relationship with the EU," Johnson said. Unlike Canada, Australia does not have a comprehensive trade deal with the EU, and most of its trade is subject to tariffs.

However, the UK as a nation conducts far more trade with the EU – around 47% of its overall trade compared with Australia’s 15%.

“With the UK now looking like it’s hurtling towards a no-deal Brexit, investors should adopt the brace position for swings in sterling and shares in domestic focused companies,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.

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Whether or not a deal is achieved, the UK’s temporary trade arrangements with the EU will expire on 31 December.

A surge of freight volumes has caused gridlock in UK ports, and the government has been warned by port operators that further disruption could be on the way once new Brexit checks come into force.

Felixstowe, the UK’s biggest deep-sea port that handles 40% of the country’s container trade, has been handling around 30% more goods than usual as businesses have rushed to replenish stock after the end of the recent England-wide lockdown and ahead of the final days of the Brexit transition period. The disruption has also been felt in other major ports including Southampton and London Gateway, impacting several industries.

Shortages of essential products like washing machines and fridges have been reported by several high street retail chains. Builders are also running short on tools and supplies, with Builders Merchants Federation CEO John Newcomb describing the ports as a “major issue” for members.

“There appears to be an increasing issue getting products through ports,” Newcomb said. “Rather than taking a maximum of one week to unload, it is taking up to four.”

Elsewhere, Honda was forced to close its 370-acre factory in Swindon – its largest plant in Europe – which operates a “just in time” manufacturing supply chain. As the punctual arrival of goods is essential to the continuity of its production line, congestion at ports left the factory unable to function.

From 1 January, UK exporters and lorries will be subject to new checks on agricultural and animal products at EU ports, which logistics industry heads fear will disrupt mainland imports. Equally concerning are the health and safety checks that the UK plans to impose on EU imports, including food, potentially causing shortages.

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In a letter to cabinet office minister Michael Gove in November, British Ports Association CEO Richard Ballantyne warned of a “severe impact” on trade and essential supplies.

“Some ports are being told by customers that these volumes of interventions could ‘kill off’ particular trades,” Ballantyne wrote, raising fresh-cut flowers and salad and meat supplies for supermarkets as some of the most at-risk areas.

Paul Marcantonio, Executive Director for the UK & Western Europe at ECOMMPAY, offers Finance Monthly his predictions for open banking and the fintech sector in 2021.

The UK leads the charge in open banking; 2019 bore witness to a surge of growth in the country’s open banking ecosystem, when UK open banking hit one million users, regulated providers hit 204 and there were 1.25 billion API calls. It is evident that open banking has played a significant role in consolidating London’s place as a global leader in the fintech industry, comparable only to New York. With Brexit looming, there are many unknowns on the road ahead for UK businesses and their ability to deliver open banking services to the wider EU market after 31 December. Will open banking be affected by Brexit? And what is the outlook for the UK fintech sector in the new year?

The Brexit effect

Many companies are worried about maintaining the smooth digital experience that the modern consumer now prioritises post-Brexit. Looking ahead, UK businesses will lose their ‘passporting’ rights to do business across the EU, with organisations in the EU suffering similar barriers when seeking to operate in the UK. To overcome this barrier, many firms have created bases in the EU, while companies are also applying to the FCA for temporary permission to operate in the UK.

In order to minimise the disruption to open banking services post-Brexit, the FCA has said that third-party providers (TPPs) will be able to use an alternative to eIDAS certificates to access customer account information from account providers, or to initiate payments. eIDAS certificates of UK TPPs will be revoked when the transition period ends on 31 December. This means that TPPs have a compliant way to access customer information and ensures any changes as the UK leaves the EU will be smooth.

Businesses are having to audit their suppliers, as well as their payment service providers, to ensure they have all the necessary licenses to operate in the EU. Many companies are also building separate EU entities so that they can function in the EU under any Brexit agreement.

Many companies are worried about maintaining the smooth digital experience that the modern consumer now prioritises post-Brexit.

EU regulations

The role of open banking will only increase after Brexit, since the open banking agenda cannot be achieved by existing major banks. Open banking allows banking services to digitise so that consumers gain access to more choice than ever before, and extends the market to new entrants able to offer products and services that banking incumbents do not.

Furthermore, regulatory intervention serves to foster competition in the finance industry and is evidently necessary. The EU Payment Services Directive 2 (PSD2) was brought in during September 2018, and brought open banking requirements in across the EU, going further than the Retail Markets Investigation Order 2017 (CMA Order) in the UK which mandated that the biggest banks provide customers with the ability to share data with authorised APIs. The CMA Order revealed how regulation can motivate banks to modernise their services, but PSD2 gives consumers more choice and protection in opening up payments to third parties so they can access a variety of options when deciding how to pay and with whom to share their data.

Consequently, PSD2 will be a crucial mechanism for the UK financial services industry in order to remain competitive in Europe and across the world. The UK will therefore need to ensure it complies with EU regulations if it is to cement its position as a leader in open banking and continue to let the sector thrive. This means the UK is likely to align with EU regulation where it meets the needs of its own internal market, and is predicted to use regulation as a blueprint for its own but adjusted to meet its separate needs.

The road ahead for UK open banking  

Regardless of the nature of the UK’s relationship with the EU, many experts suggest the UK open banking standard is broader than the EU’s PSD2, and therefore has potential to be utilised as a blueprint for other countries worldwide. Although the route forward for open banking is not clear, what is evident is that open banking technology will carry on driving innovation and competition within the financial services industry, with the consumer able to access more convenience and choice.

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The UK will make routes to economic growth a priority, which means open banking must play a major part in this. After the UK agrees technical standards and governance, open banking can present a competitive advantage via open APIs and enable the fintech sector to benefit from sustained growth into 2021 and onwards.

Learnings for businesses 

The modern consumer wants efficiency, with services and products on demand. As such, open banking must be looked to when seeking to cater to the consumer. For example, cross-border payments, innovation around APIs, and automation, are all enabling companies to simplify complex payment processes, and make the experience quicker and easier, as well as allowing for easy scaling.

Payment solutions such as ECOMMPAY’s utilise open banking technology to enable consumers to initiate payments to merchants without the need for debit or credit card transactions, and are crucial in expediting efficient payments within and across borders, customised according to localised requirements.

Brexit has been on the horizon for several years now, allowing businesses time to establish contingency plans. As long as companies have invested wisely in their payment infrastructure, they will be in a good place to ensure sustainable growth for years to come.

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