What would Brexit mean for RateSetter investors?

By Luke OMahony

People across the UK will go to the polls on Thursday 23 June 2016 to determine whether the nation should remain in the EU. Some investors have asked us what the effect of Britain leaving the EU would be on RateSetter, so with six weeks to go until the referendum we wanted to share our thinking on the issue.

The direct impact of Brexit on RateSetter would be limited

RateSetter’s investors are UK-based and only lend to creditworthy borrowers in the UK. As a result the outcome of the referendum should not have a material direct impact on the day-to-day operation of the RateSetter marketplace – it should still be business as usual.

RateSetter also launched in Australia in 2014, which proves that membership of the EU is not in itself a defining factor in any future decisions about entering new geographical markets (although we currently have no plans to do so).

However, leaving the EU would have implications for the UK’s economy and could have an indirect effect on the RateSetter marketplace. The key areas are set out below:

Economic stability

Of course, the future is inherently uncertain, but the more likely the economy is to remain stable, the better growing businesses like RateSetter can plan ahead and invest confidently. It is likely that in the short term at least there could be some negative economic impact from leaving the EU – although the scale of that impact is disputed by both the Leave and Remain campaigns.

On the other hand, we are a business that thrives on disruption - we know that change brings opportunity. The catalyst for our sector was the financial crisis, and unlike the larger financial institutions, we are nimble and flexible. Leaving the EU would be likely to discombobulate the big banking conglomerates and perhaps that would lead to more competition in finance and help force positive change for UK savers, investors and borrowers.

Regulation

Advocates of Brexit argue that leaving the EU would free the UK from regulations and red tape handed down from Brussels.

However, the UK marketplace lending sector is in a good place with regards to regulation – the regime that applies to marketplace lending is UK designed and implemented, not imported from Brussels. It’s great that the UK has led the way with enabling but robust regulation, resulting in a vibrant and growing fintech sector, while other European nations have lagged behind. But EU membership has not hindered this, so we are optimistic that whether we are in or out of the EU, the marketplace lending industry will continue to be regulated appropriately.

Commercial lending

Currently a quarter of RateSetter borrowers are businesses and some of those businesses are importers and/or exporters. It is generally accepted that EU membership makes exporting to and importing from Europe easier but there is no consensus on how this would change if the UK left the EU (this would depend on what if any trade agreements could be negotiated and how quickly they could be put in place). Some argue that outside the EU, the UK would have to negotiate new trade deals with the EU and that this would be a long and difficult process, whereas others believe that these deals would be easy to forge and trade would continue as it was.

We are mindful of the risks of lending to businesses that trade across borders, and our expert underwriters factor this into lending decisions and also the contributions made into the Provision Fund.

Employees

RateSetter has a diverse team of skilled employees including Brits, Europeans and people from further afield. To date, as our business has grown we have always been able to hire high-quality people, but we would not want this to become more difficult, or for our existing employees to find there are barriers to remaining in the UK.

Investors

Our investors are renowned for being highly engaged with financial issues, so last summer we asked them directly for their views on Brexit. 70% replied they'd prefer to remain in the EU with 30% saying they’d vote to leave.

Conclusion

The debate around UK membership of the EU is vigorous and often confusing. However, you should expect it to be business as usual with RateSetter whatever the outcome of the referendum – we are well-positioned to thrive either way.