The UK’s vote to leave the EU will have many implications for the financial services sector. Continued regulatory alignment is one of them. In its current form the Payment Services Directive 2 (PSD2) is likely to be delayed, but not derailed.
While there are many unknowns as the UK and the EU come to terms with Brexit, the mandate given to the next prime minister will likely see the UK retain partial access to the single market, negotiated on a sector-by-sector basis. It is unlikely that the new government to be installed by October 2016 will seek full access to the single market, given the obligations it currently bestows.
For UK financial services providers that have invested heavily in preparing for compliance with PSD2, all is not lost. In my recent report, Preparing for PSD2 and Open Banking, it was made clear that the key driver of this regulation is technological, not political. Since the implementation of the original Payment Services Directive (PSD), new players in the payments industry have emerged that operate outside of its scope. These third-party providers (TPPs) have faced significant barriers to offering their products and services because, under the current PSD, banks are not obliged to grant access to their customer data. The main purposes of PSD2 is to essentially “catch-up” with the technological developments unfolding within the payments and banking industry, and to spur the development of Europe’s fintech industry. Both of these factors apply to the UK, whether it is a member of the EU or not.
That said, as the UK seeks to negotiate its withdrawal from the EU, the uncertainty of the situation will place lobbyists for financial services providers in a stronger negotiating position vis-à-vis the government, making the implementation of new regulation less of a priority. The fundamentals of a burgeoning fintech industry in London and across the UK, an outward-looking and innovative financial services regulator, and the unstoppable progression of technology mean that the impact of Brexit will only cause a brief hiatus for the implementation of PSD2, or its UK equivalent.
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