“Global Britain” and India post-Brexit: From Visas to FinTech
Tess Baker and Hannah Koole (Leiden University College The Hague)
With Brexit less than four months away, the UK government will soon have to start turning the idea of “Global Britain” from a slogan into reality. According to the Withdrawal Agreement, the text of which was published on 14 November, the UK is allowed to “negotiate, sign and ratify international agreements” in areas in which the EU has exclusive competence such as trade, as long as they do not enter into force before the end of the transition period. However, the UK’s future relations with the EU, as sketched out tentatively in the Political Declaration published on 22 November, will still loom large over its post-Brexit autonomous trade policy.
One of the prime targets the UK needs to woo during the transition are Commonwealth countries, one which takes pride of place– India. Already the second most populous country in the world, India is expected to be the third largest economy by 2030 with, among other things, an impressive Financial Technology (FinTech) sector. Though the UK’s scope of manoeuvre remains limited during the transition period, it has taken note of India’s success and already started a “charm offensive” as early as November 2016 with Theresa May’s visit to pave the way for a future trade agreement with India. The UK’s Department for International Trade (DIT)’s upcoming visit to India for the India-UK FutureTech Festival signals a continuation of this courting and the potential for FinTech to take centre-stage.
What is FinTech and why is it relevant for UK-India relations?
FinTech is a term used to describe new technologies in the financial services industry, varying from techniques for data security to financial service deliveries. In the past few years the sector has rocketed in investment globally; from 2013 to 2015, investments more than quadrupled to over US$ 20 billion. London is the global FinTech hub while India’s FinTech sector is growing rapidly partly due to its large market base. Arguably, FinTech is the main alignment of interests between the UK and India on which the UK is now trying to capitalise.
A new focus in UK-India relations
The focus on FinTech has evolved from past UK-India relations, which have been shallow at best. Relations between Prime Ministers May and Modi have been frosty, especially concerning Britain’s restriction of student visas for Indian nationals. A new strategy focused on technology and trade suggests that the UK recognises India as an important partner for its post-Brexit economic success. Yet for a relationship to develop between the two states, a genuine and mutually beneficialpartnership must emerge. The UK, however, seems to be caught between wanting to embrace India as a partner and remaining firm on tight visa restrictions. It has been criticisedfor its complacency and dismissive attitude torelations with Indiaup to now.Historically, the UK dropped trade deals with Commonwealth countries when it joined the EU. However, the UK seems to have recognisedthe importance of a future trade agreement with India; both May and Prince Charles wooed Modi to attend Commonwealth talks and the UK has been rolling out its soft power offensive, including May’s visit to India in 2016.
In this vein, a delegation from the UK’s DIT is visitingIndia in mid-December. The trip is focused on promoting bilateral trade and investment, seeking closer relationships with non-EU partners as part of the “Global Britain” agenda. The DIT’s visit culminatesin the India-UK FutureTech Festival on 11 and 12 December. The increasing significance of FinTech for the UK is evident, seeing as various other delegations have visited India with the same FinTech agenda, such as the Lord Mayor of London and Communities Secretaryof State James Brokenshire. These intensifying relations follow the recently established UK-India Technology Partnership.
Brexit as FinTech opportunity
Brexit may provide the UK and India the opportune moment to collaborate in the FinTech sector. Lord Howell, former MP, went as far as stating that the Commonwealth is more suitable for this expansion than the EU, because the Union’s regulatory system is too heavy and out-dated. This idea is worth examining, considering the growing demand for FinTech applications in various Commonwealth countries, including in Africa. It could prove strategically rewarding for the UK to further consolidate its position as the world leader in FinTech since it desires stronger trade ties with the Commonwealth. However, the question remains of how this can be achieved.
FinTech regulation in EU law
In order to provide an answer, it must first be established how the EU regulatory system may slow FinTech innovation and to what degree the UK will be bound by the same regulatory standards post-Brexit. There are three factors underlying the highly regulatory nature of EU law in this field. First, EU law tends be highly regulatory because it has to ensure a level playing field to secure the functioning of the internal market. Second, the right to (data) privacy is held in high regard in the EU legal order. Since the transfer of data lies at the regulatory heart of FinTech, this is highly relevant. Third, a study by the European Parliament identifies the lack of legal certainty for FinTech companies as a major competition challenge for the EU. Although it acknowledges that financial regulations form the main entry barrier to the EU market, it recommends increased regulation to remedy legal uncertainty. Accordingly, the EU FinTech market is governed by a host of financial regulations.
These factors have led to developments in EU regulation that may disincentivise FinTech investment into the EU. Indeed, the new General Data Protection Regulation (GDPR) and Payment Services Directive (PSD2) accomplish three goals relevant for the FinTech industry. First, they enable open banking thereby promoting the FinTech industry; second, they assign the power to determine who receives personal data to the consumer; and third, they raise security standards for data storage. While the first goal clearly aims to accomplish innovation, the second has caused confusion with banks and companiesbecause the GDPR and PSD2 fail to clarify which party should obtain the customer’s consent to share personal data, and the third has resulted in onerous obligations for data-storing services because violations of the GDPR are met with high fines. These createserious hurdles for FinTech companies to do business in the EU.
Post-Brexit “Global Britain” and India
Peter Mandelson has pointed out, “for most Commonwealth producers the UK was chiefly an easy route into Europe… It is not obvious what advantages post-Brexit Britain has to offer.” However, if the UK is able to offer a more attractive FinTech business climate by deviatingfrom EU rules, it may be a catalyst for closer relations with India and other Commonwealth countries. The Political Declaration on the Future Relationship,which outlines the framework of EU-UK relations post-transition, stresses “the Parties’ regulatory and decision-making autonomy.” Nevertheless, during a transition period as envisagedin the proposed Withdrawal Agreement, the GDPR (or similar data security standards) will remain applicable to the UK. Hence, the UK’s ability to go down a different path in financial regulation remains severely limited and the comparative negotiating advantage gained by casting off the EU “straitjacket” will not be realised for the foreseeable future, especially considering that the transition periodcan be extended.
Tess Baker and Hannah Koole (Leiden University College The Hague), are Research Assistants for the project “Global Brexit”: The Future of Relations between Europe and “Global South”at Leiden University, directed by Dr. Joris Larik.