With Brexit, will the right to gain licensure no longer be allowed between the U.K. and neighboring countries?

In the payments space, fintech companies have in the past enjoyed the protections of passporting, the right of companies to gain licensure in one European country and subsequently operate in any European Economic Area (EEA) country.

But with the vote that approved Brexit, companies are left in a “precarious position,” according to Crissy Solh, product and commercial counsel at Square. That's because more than one-third of the close to 13,500 companies that passport in the EEA first became licensed in the U.K., Solh explained during the Association of Corporate Counsel's annual meeting in Washington, D.C., Monday.

Many unknowns remain with the future of Brexit. Solh explained that while many businesses are hoping for a hard Brexit, “the people” are wanting a soft Brexit. In the scenario of a hard Brexit, the U.K. would no longer be a member of the EU and its borders would be closed, meaning passporting will no longer be allowed between the U.K. and neighboring countries. A soft Brexit could have different variations, with a possibility of the allowance of passporting to continue.

Even though companies might be holding out hope, they have to be responsible, Solh said. “Companies have to prepare for a hard Brexit if they want to continue to passport through the EU,” she said.

For fintechs interested in passporting, there are different considerations, including looking at taxes or privacy laws. Ireland and Luxembourg are two of the “known friendly tax jurisdictions,” Solh said. Ireland, for instance, has a 12.5 percent corporate income tax, whereas other EU countries sit in the 20 to 30 percent range.

Something else to keep in mind is that the country where payments companies gain licensure is where their data will be regulated, Solh pointed out. France, she said, “has been known as a difficult regulator,” with “stringent laws” and “intense oversight to make sure you're protecting your data.”

The Netherlands and Sweden are “where companies tend to place their servers,” Solh said, because their data protection regulation is more “flexible.”

Across the board in the payments space, Germany has been known to be among the tougher regulators, Solh warned. Even if a fintech applies for licensing elsewhere in a different country in Europe, Solh noted, there is a possibility German regulators could request additional information if the company plans to passport into the country.

“Be prepared,” Solh said. “They want to know more about you before they'll let you passport in.”

Contact Stephanie Forshee at [email protected].

With Brexit, will the right to gain licensure no longer be allowed between the U.K. and neighboring countries?

In the payments space, fintech companies have in the past enjoyed the protections of passporting, the right of companies to gain licensure in one European country and subsequently operate in any European Economic Area (EEA) country.

But with the vote that approved Brexit, companies are left in a “precarious position,” according to Crissy Solh, product and commercial counsel at Square. That's because more than one-third of the close to 13,500 companies that passport in the EEA first became licensed in the U.K., Solh explained during the Association of Corporate Counsel's annual meeting in Washington, D.C., Monday.

Many unknowns remain with the future of Brexit. Solh explained that while many businesses are hoping for a hard Brexit, “the people” are wanting a soft Brexit. In the scenario of a hard Brexit, the U.K. would no longer be a member of the EU and its borders would be closed, meaning passporting will no longer be allowed between the U.K. and neighboring countries. A soft Brexit could have different variations, with a possibility of the allowance of passporting to continue.

Even though companies might be holding out hope, they have to be responsible, Solh said. “Companies have to prepare for a hard Brexit if they want to continue to passport through the EU,” she said.

For fintechs interested in passporting, there are different considerations, including looking at taxes or privacy laws. Ireland and Luxembourg are two of the “known friendly tax jurisdictions,” Solh said. Ireland, for instance, has a 12.5 percent corporate income tax, whereas other EU countries sit in the 20 to 30 percent range.

Something else to keep in mind is that the country where payments companies gain licensure is where their data will be regulated, Solh pointed out. France, she said, “has been known as a difficult regulator,” with “stringent laws” and “intense oversight to make sure you're protecting your data.”

The Netherlands and Sweden are “where companies tend to place their servers,” Solh said, because their data protection regulation is more “flexible.”

Across the board in the payments space, Germany has been known to be among the tougher regulators, Solh warned. Even if a fintech applies for licensing elsewhere in a different country in Europe, Solh noted, there is a possibility German regulators could request additional information if the company plans to passport into the country.

“Be prepared,” Solh said. “They want to know more about you before they'll let you passport in.”

Contact Stephanie Forshee at [email protected].