Impact of Brexit

What is the impact of Brexit on the financial services market?

There has clearly been a risk that Britain’s departure from the European Union would have a disruptive effect on financial markets. However, in practice it seems unlikely that this will be the case. This is because:

• There is now the likelihood of a transition period running until the end of 2020 and perhaps longer, which will enable relocation plans to be implemented more effectively and safely.
• Regulators and financial institutions themselves have taken major mitigation measures to avoid the risk of disruption in financial markets.

What is the overall impact of Brexit on the City so far?

Brexit has already had a significant impact, although most of this impact is not easy to see. Even though Britain will be outside the EU it will be affected by EU policies. In particular, those financial institutions that wish to operate within the EEA post-Brexit will have to comply with EU rules.

How has Britain previously been able to influence EU regulation?

The UK has been very successful at influencing EU regulation over the last 30 years through a combination of:

• Expertise that goes with the size and importance of the industry
• Excellent work by officials in the Treasury and regulatory bodies
• Good input from the industry by individual companies and trade associations
• Excellent work by a small number of Members of the European Parliament

Immediately after the Referendum this influence diminished as there is less capacity, and indeed willingness, for Britain to have an influence, and less willingness to give British views the same weight as they previously had.

How has Brexit impacted the resources of a given company?

There has been a diversion of resources away from strategy and business development to dealing with Brexit. Large project teams have been put in place in major companies, aided by consultancy and legal support. Staff who were previously working on expanding the business are now working on protecting existing business. This will feed through to profit and loss accounts, although it will not be possible to identify precise figures.

However, it is known that major banks have individually spent over £300 million on Brexit plans and the cumulative costs runs into billions.

Where can I find information on actual moves regarding Brexit?

1. The most authoritative source of data on actual moves and declared intentions is EY’s Brexit Tracker.
   • Its report published in September 2019 said that 92 out of 222 firms (41%) that have been tracked are considering or have confirmed moving operations and/or staff to the EU 27.
   • It is estimated that 7,000 jobs could relocate to the EU 27 in the near future with £1 trillion of assets leaving the UK.
2. A second source of data on actual moves is a report published by the think tank New Financial in October 2019.
   • This looked at a wider range of financial institutions than the EY study.
   • New Financial identified 332 firms in the UK that have moved or are moving some of their business, staff, assets or legal entities from the UK to the EU 27 in preparation for Brexit.
   • 310 of these firms had identified specific post-Brexit hubs - Dublin has been the biggest beneficiary with 115 relocations, followed by Luxembourg with 71, Paris with 69, Frankfurt with 45 and Amsterdam with 40.
3. The report said that the debate on staff moving so far was a red herring as most firms are keen to move as few staff as possible until they know what Brexit is like and until they have to.

What is the impact of Brexit on employment?

The effect on employment so far has been comparatively small, and largely reflects new jobs not being created. For the most part, the new offices in the EU 27 are employing additional staff locally rather than taking staff from London and other parts of the UK.

What is the long-term impact of Brexit?

The longer-term impact of Brexit on the financial services industry in the UK is unknown.  It depends partly on the future trading relationship between Britain and the EU, although there is little expectation that this will be anything other than “normal third country status”. However, there may be some useful mitigating measures such as grandfathering clauses that will facilitate a more orderly shift of business from the UK to other centres.

The alternative scenarios were analysed in a report commissioned by TheCityUK from the Oliver Wyman consultancy in 2016.

Best case scenario:

• It concluded that if the UK retained market access on near to current terms the impact would be only modest
  • 3,000-4000 jobs at risk
  • Tax revenue falling by less than £500 million a year

Worst case scenario:

• At the other end of the spectrum, if the UK had no special status with the EU - in effect what has now been agreed - there will be significant losses in jobs and revenue, especially when considering the closure of UK businesses that operate alongside those parts of the business that leave
  • 75,000 jobs at risk
  • Loss of £10 billion of tax revenue