Canadian fintechs not intimidated by Brexit

FLOCK TO LONDON

— presents an opportunity for Wealthsimple's lower-cost robo-advisor service.

In 2013, the U.K. financial advice compensation structure was overhauled by the regulator, shifting from a commission-based system to explicit, upfront fees. That left some smaller investors unable or unwilling to pay the fees, and encouraged some advisers to turn down clients that are too small to be material.

According to a survey released in 2016 by the Association of Professional Financial Advisers, 69 per cent of advisers said they had turned away potential clients within the previous year, with 43 per cent citing affordability.

“We're just being very open, transparent, and have a simple pricing structure in place,” Triebel said. “And that should ultimately play in our favour.”

Other Canadian fintechs that have made the move, or plan to, include Torontobased Q4 Inc., an investor relations and capital markets software and analytics firm establish a London office within the next two months, said Henry Long, investment officer with the U.K. Department for International Trade (DIT) based in Toronto.

These four firms were among the 11 fintechs that went on a trade mission to London with the DIT in December 2016 — a participation requirement of which was a commitment and willingness to establish a presence in the U.K. within two years.

Long said the department is anticipating that three of those companies, including Kooltra, will officially launch in the U.K. within the next 12 to 18 months.

Despite the uncertainty after the Brexit vote and the U.K.'s negotiations to leave the European Union, there has been an uptick of interest from Canadian fintechs looking to make the move, Long said.

The interest also comes after the Ontario Securities Commission in February signed a co-operation agreement with its counterpart Investment in the U.K. fintech space hasn’t slowed down either, as evidenced by the bump in activity in the second quarter to roughly US$1.4 billion, according to a report. partnerships and launching services to customers, and throwing the weight of their marketing to popularize their relationships as well,” he said.

Fintech adoption in the U.K. is far ahead of many parts of the world, including Canada. Its fintech adoption rate was 42 per cent, third highest among 20 markets assessed by Ernst and Young in its latest Fintech Adoption Index.

China leads the way at 69 per cent and India is second at 52 per cent. Canada ranked 18th, with just an 18 per cent adoption rate.

Investment in the U.K. fintech space hasn't slowed down either, as evidenced by the bump in activity in the second quarter to roughly US$1.4 billion, according to KPMG's recent Pulse of Fintech report, compared to less than US$250 million of venture capital, private equity and merger and acquisition activity a year earlier, the report said.

“London-based fintechs still command plenty of capital, despite ongoing political uncertainty,” KPMG said in its report released in August. “There have been large investment rounds at both ends of the scale — from late-stage deals into more traditional subsectors such as lending, to activity in emerging areas such as insurtech and regtech.”

However, as the possibility of a hard Brexit becomes more real — with Londonbased financial services firms potentially losing the ability to hire EU nationals or conduct business with the rest of the continent — many fintechs have started looking for potential alternative locations for their operations, Anna Scally, KPMG partner and fintech leader in Ireland, said in the report.

“While regulators are pushing major banks and insurers to come up with a ‘Plan B,' fintechs haven't had to be as quick to make decisions," she said. "But expect to see fintechs increasingly focused on examining their options over the next six months.”

One prominent Londonbased fintech unicorn (a company valuation of more than $1 billion) has expressed second thoughts about setting up in the U.K. after the Brexit vote in June 2016.

In April, Taavet Hinrikus, chief executive of money transfer firm TransferWise, told an international fintech conference held by the U.K. Treasury in London that he might have chosen another city if he knew what was to come.

“If I was setting up TransferWise today, I probably would not choose London,” he said.

Wealthsimple also decided to push into the U.K. before the Brexit vote, but the outcome had no impact on the decision, Triebel said.

The company is also confident that Brexit won't impede the company's eventual expansion into the continent.

“If and when we do decide to go to the rest of Europe, we have a contingency plan in place that will not be dependent on the passporting,” Triebel said.