In a stunning vote, British citizens decided to leave the European Union, and the so-called Brexit has not just profound implications for fintech, but creates massive uncertainty for global financial services.

“How can we be so stupid?” tweeted Eileen Burbidge, a partner at Passion Capital and FinTech Envoy of HM Treasury, a UK government appointment.

The “Leave” campaign won by 52% to 48%. Polls prior to yesterday’s vote had the “Remain” vote in the lead. The margin of victory startled even proponents of a British exit.

Bank stocks in Europe were hammered by investors. The Euro STOXX Bank index was more than 17% lower at 9:56 am ET today. US bank stocks are also getting pummeled. The KBW Bank Index is 4.8% lower. The British pound’s price vs. the U.S. dollar hit its lowest level since 1985: £1.3739 per $1.

The vote has central banks standing by to pump funds into markets to maintain pricing levels. The Federal Reserve, for example, said it was “prepared to provide dollar liquidity through its existing swap lines with central banks, as necessary, to address pressures in global funding markets, which could have adverse implications for the U.S. economy.”

About 6.8% of all fintech startups today are located in the United Kingdom, according to a Bank Innovation analysis. The UK is home to nearly 1,500 fintech startups today. Among the well-known fintech startups in the UK include Transferwise, Funding Circle, Currency Cloud, Wonga, and Kantox. Even this month, some noteworthy fintech startups have launched in the UK, such as PayFlic, PointVest, and BullBoard. 

Market observers see British fintech taking a significant hit, in terms of investment dollars and general growth, not to mention the uncertainty associated with how Brexit will technically work.

“We sympathize with the next generation of startups who may suffer without some of the advantages that got us where we are today,” said Hiroki Takeuchi, CEO of GoCardless, a London-based payments company that generated $1 billion of revenue last year. “But those who make it will demonstrate similar resilience for this new status quo. We must all adapt accordingly.”

The effects are already being felt. Morgan Stanley & Co., for example, has begun moving 2,000 investment banking staff from London to Dublin or Frankfurt, BBC reported.

CURVE BALL FOR BANKING REGS

Perhaps the most complicated aspect of Brexit is what it will do to banking regulation. The uniform (or at least not-contradictory) regulations across the UK and Europe have proved helpful in recent years for London fintech companies scaling up and smoothly entering new markets. But that is at risk now. Ron Atzmon, CEO of Au10tix, an authentication company headquartered in Nicosia, Cyprus, but with offices in London, San Francisco and Tel Aviv, questioned whether authentication and KYC/AML schemes worked out between UK and EU regulators would still be in place post-Brexit.

“One of the questions that would need to decided is personal data privacy,” Atzmon told Bank Innovation. “Will processing EU data in the UK (and the other way around) still be OK or not? Also, the UK’s financial regulators are much more flexible, which is one of the reasons fintech in the UK has been booming. When the UK is out, will its regulators still follow EU regulations?”

If they don’t, and adopt instead a different set of rules, that complicates the matter for UK fintech companies. This point is evident, for example, for CurrencyTransfer.com, a London-based cross-border business funds transfer service.

“Many firms rely on the passporting privileges, that one [Financial Conduct Authority] regulation allows you to trade across Europe.” Daniel Abrahams, CurrencyTransfer CEO, told Bank Innovation. “This would heavily slow down growth, speed and momentum — critical ingredients when scaling up a company.”

Abrahams predicted increased travel and general friction for UK fintechs. He added that nervousness over the value of the pound has already led to some unusual client behavior.

“We’re seeing many clients on the platform locking in the current exchange rates with up to 12 month forward contracts,” he said.

Finally, Abrahams also worried about the cooling effect Brexit could have on London’s ability to lure entrepreneurs.

“I sincerely hope we do not see a dry up in the talent pool in London,” he said. “It’ll be harder for rockstar developers to come over and build the next wave of ambitious companies.”