Don’t panic. For money transfer businesses, the impact of Brexit can be managed.

The British people’s vote to leave the European Union came as a shock to pundits, politicians and business leaders alike. Several months on, it can be put into perspective.

The morning of June 24th 2016 will go down in election history as a seismic shock. But unlike when a political party is voted into government, the ramifications of the UK referendum on membership of the EU will be far reaching and irreversible. Like all change, it will throw up both threats and opportunities. For Money Transfer Operators of all types, they will need to take stock of their own individual circumstances and take remedial steps to retain business and/or take advantage of new opportunities.

Some Misconceptions

That said there are some misconceptions to get around. The first misconception is that things will change straightaway. They won’t. The UK can only leave the EU after a process which can only start with the British Government invoking Article 50 (the clause in the EU Treaty that gives notice of intention to leave). At the time of writing the UK government is targeting this formal notification before the end of March 2017. Despite the UK Prime Minister saying otherwise, legal wrangling within the UK might delay this date.

Once Article 50 has been invoked by the UK government, all parties have up to 2 years to negotiate a new agreement. The UK will exit the EU and become a wholly independent nation state 2 years to the day after Article 50 has been invoked unless all parties decide otherwise. If no agreement has been made, the default position appears to be that the UK will leave the EU and rely on world trading agreements that are already in place.

So, there’s at least two years before any new arrangements will be in force.

The second misconception is that everything will change. It won’t. Whilst there is a lot of uncertainty, we can be pretty sure that for certain situations, nothing will change. For example, if you are a UK based MTO or MSB providing a money transfer service to India with a SPI licence for a UK send corridor with a UK based bank account, in all likelihood nothing will change at all.

What might change?

The main area of potential uncertainty is the outcome for cross border financial services. This might affect a MTO/MSB which operates under a SPI licence. It might also affect those which operate under an API licence.
For example, if you have an EU based bank account to support a corridor from the UK to Nigeria then you may have a problem. Similarly if you have a UK bank account but operate a money transfer corridor from France to Algeria then you may too have a problem.

However, the impact of a change in banking passporting on the money transfer business is a mere pin prick compared to the impact on the wider financial services market. UK and European banks that trade EU-wide are using the passporting regulations to do so. Therefore, there is likely to be significant focus on keeping these arrangements in place to maintain stability in the financial services market and from a UK perspective, to preserve the City of London’s central role. That said, nothing can be ruled out, so a few contingency plans would be useful.

What to do?

1. You could make plans to be ready for any eventual outcome of a change in UK/EU bank passporting arrangements.

Some suggestions:

i) You should match your bank account to your SPI licence domain. For example, if you have a SPI licence but an EU based bank account supporting a UK send corridor then you should acquire a UK based bank account.

ii) Or if you currently have a SPI licence but have ambitions of operating across both the UK and EU then you should apply for an API licence sooner rather than later to beat any post Brexit rush.

iii) If you are thinking of applying for an API licence then you should acquire additional bank accounts so that you have at least one for each area (UK/EU).

iv) If you already have an API licence you too should mitigate your risks by holding both a UK bank account and an EU based bank account – at least one in each area.

2. Focus on getting your compliance in good order.

This might seem like an odd suggestion in relation to Brexit but there are very good reasons why being seen to have full, transparent compliance will help you through the potential changes that Brexit may bring. The first reason is that there is evidence that regulators across the EU are going to become more stringent in order to de-risk financial transactions. If you are likely to be seeking an API licence and/or an EU bank account in the near future then being seen to have full compliance will increase your chances of doing so.

The second reason to focus on compliance would be if you already have an EU bank account but are in the one of the groupings (i) to (iv) that should open a UK based bank account. The UK banking system has been seen to be more stringent than the EU zone since the banking crisis of 2007/8. As a result, a huge number of UK based MTOs/MSBs have lost their UK bank accounts in recent years. Again, being seen to have full compliance will increase your chances of being able to acquire a UK bank account to match your particular circumstances.

3. Modernise your technology platform.

All change brings with it opportunity. Brexit will be no different. Whatever the outcome of the Brexit negotiations, you can be certain that some things will change and business opportunities will emerge. The recent fluctuation in Sterling could decrease the outflow of transactions from the UK but increase inflow of transactions into the UK. There may be more opportunity for more bi-directional money transfer traffic.

Remittance was one of the few financial services where volumes were not adversely affected by the banking crisis. Nor should it be adversely affected by Brexit, just that there may be adjustments here and there. By having a flexible and compliant modern platform, it would allow you to quickly take advantage of both send and receive distribution opportunities.
In addition, a modern technology platform should give you a lower per transaction cost, allowing you to be more competitive in a marketplace of change.

Summary

To ride any potential Brexit storm, the best thing a money transfer company can do is to prepare.

If you operate solely in the UK then focus on having your SPI licence in place together with a UK bank account. If you operate solely in Europe, focus on having an API licence, an EU bank account and strong compliance. If you operate in both UK and EU, have an API licence together with at least one UK bank account and at least one EU bank account.

To be in a position to take on new opportunities and to adapt to changing market conditions ensure that you have a modern technology platform that can adapt while keeping you compliant.

Brexit will lead to change. It won’t happen overnight and there are things you can be doing to mitigate risks and prepare for opportunity.
And we’re here to help you with consulting services and market leading technology.