Pre-referendum, many voices within the UK financial services industry called for a remain vote, believing access to the single market and being part of Europe would result in a more stable future. But, let the hand-wringing stop…the UK voted out and it’s time to face up to change.
Certainly for many Brexit voters, protecting the UK’s vast financial services sector may not have been at the forefront of their minds. But, the presence of so many leading financial services providers centered in the City of London is a major asset to our economy – so how concerned should we be?
Firstly, it appears there is no immediate cause for panic. The UK’s financial services market is innovative and dynamic and should be able to withstand the shock of Brexit, even though some damage is viewed as inevitable.
A report by consultant PwC has estimated that cost of relocating services alone could have a -0.4% impact on the UK’s GDP by 2030.
Further, the barriers to trade caused by the loss of passporting rights could reduce the contribution of financial services by between 0.6 and 2.2%.
Translating this to job losses, might mean between 70,000 and 100,000 fewer roles in the short term, and 10,000 to 30,000 less jobs by 2030.
But, this remains an estimate and a survey this year by Lloyds Bank of senior executives of financial services institutions, suggested more than half are expecting the economy to remain resilient.
Almost a fifth expected some operations to move abroad, but even so, the UK’s presence is expected to remain significant. Meanwhile, consultant EY’s Brexit tracker found while firms are reviewing the situation, only minor staff changes are planned.
But while staffing is one matter, passporting rights will be a major consideration in terms of trading and being based throughout Europe.
As the negotiations begin, we need to know how the UK will leave the EU – will there be bi-lateral agreements or no passporting? Will there be an equivalence agreement, which a number of pundits believe will be most advantageous? Equivalence has developed over the past 30 years to facilitate cross border trading between markets that choose to recognize one another’s standards.
Again we don’t know, but there can be some comfort in London’s status as a powerful financial centre and the fact it is currently compliant with EU directives means there should be scope to reach an acceptable solution.
Others also stress there are plenty of successful financial centers outside of the UK. Think of small territories such as Singapore and Bermuda, which have both shown impressive growth and have high regulatory standards.
Indeed, the UK’s reputation in establishing regulation and ensuring compliance are renowned – and this will continue to attract global business. The UK will also no doubt continue to show it will mirror European regulatory moves if these are in the national interest.
For example, the Treasury has confirmed that the Insurance Distribution Directive will enter into UK law despite Brexit. A Consultation Paper is open until May 22nd and pundits are watching this area closely to see whether we will be subject to ‘gold-plating’ i.e., even more restrictive rules compared to other European countries.
For financial services providers in their many guises, what matters now is that it is business as usual. The UK has survived financial crises and emerged strong and with an enviable reputation.
We must now show we are ready for the challenge of Brexit. To ensure that we can respond to the new environment and grasp new opportunities we need to ensure that our risk management systems are fit for purpose. Are they flexible enough to adapt to change? Can they capture and evaluate both Brexit risk and opportunities for potential scenarios within the same system? Can they provide meaningful and insightful reports that will enable senior managers to make the right decisions?