Brexit

Brexit Tracker: Funding’s Tough Sell, Digital Banking Fears Mount, And Lloyds Eyes Berlin

Brexit Negotiations

It’s no secret that U.K. startups have felt the impacts of operating in a post-Brexit economy — with dips in funding and pressure to vacate for better opportunities. In this week’s Brexit Tracker, even long-time venture capitalists struggle with raising funds, one digital banker fears the loss of European Union competition rule and Lloyds may be making a move to Germany.

VC Funding Gets Complicated

Skype cofounder Niklas Zennstrom is a known advocate for European startups who has invested much of his fortune into promising startups across the region. But even he has faced difficulties last year in trying to build up a venture capital (VC) fund to back European entrepreneurs due to the uncertainty cast by Brexit.

Zennstrom’s fundraising efforts for a new $765 million fund, announced last week by his London-based venture capital firm Atomico, were met with resistance from investors that questioned the U.K.’s ability to still produce Silicon Valley–like financial returns after its vote to leave the EU.

“It made it harder, for sure,” Zennstrom told Bloomberg. Investors, especially those outside of Europe, were very concerned about Brexit, he said. “It was a validation that Europe is not an area they wanted to particularly invest in.”

After more than a year, Zennstrom’s team was able to raise what’s considered to be one of the largest VC funds in Europe. In a blog post, the company said the new fund will enable it to do more of what it loves, to “work with the most ambitious founders who combine disruptive technology with the vision to build global category winners.”

“Raising a fund of this size is testament to the growing confidence in European tech — which we have championed from the start — and our unique approach to partnering with founders to help them build successful companies and create value,” the post continued.

Facing Brexit Disruption

Anne Boden, founder of digital-only bank Starling, believes that without regulation from the EU, London’s FinTech scene faces a damaged competition landscape as a result of Brexit.

Boden is a strong proponent for the EU directives about which many British banking executives complain. In her opinion, those rules are the reason that London has evolved into the FinTech capital that it is today, The Financial Times reported.

“The EU has come up with some very good payment and banking legislation,” Boden noted. “I know the traditional banks don’t always like it, but if you look at it from a competition and innovation point of view and especially for the development of FinTech, then European legislation has been both important and good.”

Boden also expressed her fears to FT that when Britain finally does achieve its split from the EU, big banks will have more scope to beat out competition due to a reduction in the pace of financial liberalization.

“We need to make sure we don’t miss out on the next wave of competition legislation,” she explained.

Boden’s Starling Bank built its IT infrastructure from the ground up, has a banking license and has full membership in the U.K.’s faster payments system. The challenger bank has benefited from EU directives that have forced traditional banks to open up the national payments systems and valuable customer data hoards to entrants.

But Boden is concerned that a post-EU Britain will be much more cautious about continuing to move toward consumer finance liberalization, which could be a major step back for U.K. FinTech.

“The payments services directive was a big part of what made the UK into such a vibrant FinTech hub,” she noted.

Lloyds On The Move

Lloyds Banking Group may be close to deciding on Berlin as a European base when Britain officially cuts ties with the EU.

The mortgage lender, which is the largest in Britain, is considering a move to turn its Berlin branch into a subsidiary and may apply for a banking license there later this year, sources told The Independent.

Though the bank declined to provide comment on the report, it remains the only major British lender that does not have a subsidiary in another EU country. If Lloyds does select Berlin, The Independent noted that it would also be the first major lender to commit to Germany’s capital. Many other European banks have looked to other locations, particularly Frankfurt, for hub access to the rest of the continent upon the U.K.’s exit from the EU.

Two of the biggest European banks, UBS and HSBC, have each warned in recent months that they could move nearly 1,000 jobs out of London in preparation for the uncertainty and disruption that may come with Brexit.

JP Morgan Chase (JPMC) has also noted that as many as 4,000 of its 16,000 U.K.-based staff will likely be affected as well.

“It looks like there will be more job movement than we hoped for,” JPMC’s Jamie Dimon told Bloomberg TV last month. “We don’t want to — it is not a threat — it is just a fact that we will have to accommodate the new requirements.”

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