Fintech Market Overview

This article does not constitute legal advice.

Cross-border payments in the UK

Fintech Software

The UK, like many other jurisdictions, is still addressing some of the transfer pricing and taxable presence problems arising out of fintech businesses. These depend on the value that is placed on a decentralised system, and new types of questions are likely to need to be answered as to what is required for a taxable presence in a country. The starting point for UK tax is to check whether there is a permanent establishment, and typically this will involve a physical presence. However, there are also anti-avoidance provisions designed to prevent an avoided permanent establishment or profit fragmentation, and in some cases the arrangements around a fintech business will need to be reviewed to see if there is a risk of triggering these provisions. In some cases, it will be harder to judge how these might apply to a global supply chain compared with a more traditional business.1

As identified in Section II.i, for a regulated activity to be carried on there must be some link between the activity and the UK. As such, where there is a cross-border element to the services or activities, it will be necessary, from a regulatory perspective, to consider where the activity is actually carried on. This will inform the analysis of whether the firm carrying on that activity requires authorisation in the UK under the process described above. Where a business does not carry on any regulated activities in the UK, it will be able to provide those services in the UK, either on a cross-border basis or from a branch office set up in the UK.1

Prior to Brexit, for firms based in Europe but intending to provide regulated activities in the UK, a complex web of EU passporting regimes applied, depending on the activities carried on by the fintech business. As an automatic consequence of the UK's departure from the single market, passporting rights to (and from) the UK have ended. However, the UK has made wide-ranging equivalence declarations in respect of EU members, allowing EU firms access to UK markets to the extent permitted by their home legislation while the UK and the EU continue to negotiate on a wider process of adoption, suspension and withdrawal of equivalence decisions between the two jurisdictions. Since the signing of the TCA, the EU has so far granted the UK very limited equivalence for financial services. Conversely, the UK has granted equivalence to European Economic Area (EEA) Member States in a majority of areas identified for equivalence process. Against this backdrop, while the trend in the UK over the past decade had been towards ever-increasing regulation, in June 2021 the government's Taskforce on Innovation, Growth and Regulatory Reform recommended that the UK focus on a more common law, principles-based approach to future financial services regulation to make the financial services sector more agile and adaptive to change.1

Fintech in the UK

Fintech in other countries

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Maxim Minaev

Maxim Minaev

We provide legal and organizational services for the creation, structuring and development of fintech companies

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  1. https://thelawreviews.co.uk/title/the-financial-technology-law-review/spain
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