London's status as the world's financial technology – or fintech – hub could be under threat should a Brexit occur, lawyers, venture capitalists and start-ups have warned CNBC.
As Britons head to the polls today to decide the future of the UK's membership of the European Union, technology market leaders have already noticed parts of their business slowing down given the uncertainty around the outcome of the referendum.
"We will see that other regions will grow stronger at the expense of the UK in the event of a Brexit," says Andreas Haug, co-founder and partner at e.ventures, a venture capital firm with headquarters in Germany. "The fintech sector will take a huge hit. Teams in the UK are supported by the financial industry, and a constructive government and regulator, but if you can't roll your product out European-wide, a lot of teams will move away."
Technology firms benefit from a number of advantages from the UK being a member of the EU. Any business regulated by UK authorities can "passport" their products across the European Economic Area. Firms are concerned whether this might be disappear if a Brexit happens. Companies are also bound to a number of EU laws around data protection. And the European Commission is currently trying to push through the "Digital Single Market" agenda which aims to harmonise rules across the EU in areas such as copyright.
At the same time, it's unclear what will happen to other aspects of Britain's membership of the EU such as the free movement of labour.
"My view is that the most obvious implications of a Brexit, the issues that most obviously become exacerbated, would be the question of the free movement of labour and also trade implications – import and export law – what does that look like?" says Derek Meilman, a partner at law firm Hogan Lovells. "If there is a Brexit, to what extent can EU citizens continue to work in London, in the city or tech space? For any business that relies on a non-English, non-British European labour force it has pretty dramatic implications. The people issues are the ones a tech company will worry about. If you are London-based relying on developers from Germany or France, you're in trouble."
Free-flowing but for how long? The effect on the movement of labour is one pressing concern expressed by fintech firms if the UK votes to leave the EU. Photo: iStock
In Britain, an overwhelming proportion of the tech industry favours the UK remaining in the EU. A survey by Tech London Advocates, a body that represents about 2,700 of the British capital's tech sector, found 87% of its members polled want to remain in the EU. This contrasts with the too-close-to call country-wide public polls that show the remain and leave camps roughly neck and neck. Three quarters of the Tech London Advocates' survey said a Brexit would make it harder for firms to attract investment.
Whether a post-Brexit Britain will be unattractive to investors is still unknown. Lawyers and venture capitalists in the City have reported mixed actions in the run-up to the vote. In one instance, a lawyer, who wished to remain anonymous as the deals are ongoing, said that a foreign buyer did not acquire a UK technology firm because of the uncertainty around the vote.
"I've had at least two situations where, even though the potential acquirer doesn't believe Brexit will happen, the situation has affected the way in which the acquirer has approached the deal," a top lawyer in the City said. "In one situation the potential acquirer chose to postpone further discussions until after the results of the vote. In the other situation the acquisition went forward as planned, but with heavy back-end indemnities and a larger-than-usual holdback to guard against adverse consequences of a favourable Brexit vote."
Others say it has not hit M&A appetite
"The prospect or risk of Brexit is having next to no impact on current M&A levels of activity … have yet to hear anybody say we are going to hold off selling," says Mike Turner, international head of technology, media and communications at law firm Taylor Wessing.
Just earlier this week, Twitter bought London-based artificial intelligence company Magic Pony.
‘We will adapt’
Whatever the result, companies remain confident that they will be able to adapt in the case of the Brexit, given how long it will take to renegotiate Britain's position.
"The negotiation period will last at least one year but more probable a couple of years. We will have time to adapt and then to say to restructure or reorganise the company in that sense," says Philippe Gelis, chief executive of fintech firm Kantox.
Kantox is headquartered in London and has offices in continental Europe with many of its programmers in Barcelona.
"Most tech companies have flexibility in their DNA, so if we need to adapt we will adapt, we will know how to do that. Definitely it will be painful, it will be time dedicated to things not really bringing value to our business, but we will adapt as we have always done," Gelis adds.
CNBC is a recognised world leader in business news, providing real-time financial market coverage and business information to more than 340 million homes worldwide. Visit CNBC.com for more financial news and information.
– Edited by Gayle Bryant
Follow CNBC on Twitter: @CNBCI