The UK Financial Service Sector Post Brexit

Introduction

Brexit is basically the shorthand way of expressing that UK has left the European Union. It is the fusion of the words Britain and exit – Brexit. It happened through a referendum basically a vote in which everybody old enough to express their choice was conducted on the 23th of June 2016 to decide whether UK should still be a part of the European Union or not. 51.9% (as opposed to 48.1%) of the votes supported that UK should leave (BBC.Com, 2019). The participation of the voters was 71.8% and almost 30 million people had cast their opinion.

Impact of Brexit on the UK Financial Services Sector

The immediate aftermath of the Brexit had a direct effect on the financial sector. There was a plunge in the stock market. The sterling got a blow. The confidence of the consumers or the investors received a big jolt. Since then, the financial sector has been in the limelight for several reasons:

The financial sector of the UK happens to be one of the most influential sector of the British economy (UK.Reuters.Com, 2019). Its contribution to the total GDP of UK is almost 12%. That apart, it is also responsible for the employment of more than 2 million people. Also, UK happens to be the largest export entity and it constitutes almost half of the services trading. The banks of Britain lend almost USD 1.4 trillion to the European Union government and companies(Ig.com, 2019). Also, numerous financial transactions that happen in Europe areeither directly or indirectly initiated or controlled from London. In fact, more than 85% of the people employed with the US investment banks in EU are employed by London(The SWIFT Institute, 2019).

Source: (UK.Reuters.Com, 2019)

Now, the question is to what extent Brexit actually effected the financial sector. An analysis of few issues and concerns of the financial domain reveal the following worrying facts:

Pass porting

Pass porting is the process by which a British financial company (bank, insurance, asset management institute, etc.) extends it services, whether services or products, to EU (Grantthornton.co.uk, 2019). This is done without any license or any sort of regulatory obligations or any local setup or anything. Reports indicate that close to 5500 institutes in the UK carry out business activities with EU through pass porting. And, the process is a both way traffic. EU too trades with UK through the same mechanism. With Brexit, it is obvious that the system of pass porting will no longer be applicable(Grantthornton.co.uk, 2019).

Regulatory Uncertainty

The second crucial concern of Brexit is the regulatory uncertainly. The regulations have been the strength of Britain, the reason why London became the financial capital of Europe(Grantthornton.co.uk, 2019). This happened because of two reasons –The English laws with advantages like insolvency regulations and debt issuance rules and the relaxed and employer friendly British labor laws(Grantthornton.co.uk, 2019). However, with Brexit things have simply become complicated. First, Britain will have to reviseEU rules and trade practices that have been followed since over 40 years. This will not just be time taking but many firms may not be able to hold for that long. If this talent pool undergoes any change due to visa complications or job loss probability, it’s obvious that these talents will go elsewhere(Grantthornton.co.uk, 2019).

Brain Drain

The third important impact of Brexit – Brain drain. This was the factor for London’s rise. London has got world class and field specific talents(Grantthornton.co.uk, 2019).

Short term prospects appear weak

Investment banks have started shifting their back office operations elsewhere already and that is a huge effect.

Source: (Grantthornton.co.uk, 2019)

There is no doubt that there are more consequences of the Brexit that are still in store. The train has left and there cannot be any turning back now. The fact is that something has crumbled that was otherwise pretty efficient since more than three decades (Taylor, 2019). It seems obvious that there will be prolonged period of business uncertainty post Brexit in Europe. There is still uncertainty how things will play out over the coming years, something which is not on the brighter side.

Reference:

Brexit Britain's financial sector faces 'slow puncture'. UK.Reuters.Com (2019).

Retrieved from https://uk.reuters.com/article/uk-britain-eu-city-insight/brexit-britains-financial-sector-faces-slow-puncture-idUKKBN1OA1SN

Brexit: All you need to know. BBC.Com (2019). Retrieved from https://www.bbc.com/news/uk-politics-32810887

Grantthornton.co.uk(2019). Retrieved from https://www.grantthornton.co.uk/globalassets/1.-member-firms/united-kingdom/pdf/brexit-impact-financial-services.pdf

How will Brexit impact UK financial services?Ig.com (2019). Retrieved from https://www.ig.com/uk/news-and-trade-ideas/other-news/how-will-brexit-impact-uk-banks-and-financial-services---181114

Taylor, C. (2019). UK financial services industry moves $1 trillion in assets to Europe due to Brexit, survey says. Retrieved from https://www.cnbc.com/2019/01/07/brexit-uk-financial-services-sector-moves-1-trillion-in-assets-to-eu.html

The Impact of Brexit on the Financial Services Industry | the SWIFT Institute. (2019). Retrieved from https://swiftinstitute.org/newsletters/the-impact-of-brexit-on-the-financial-services-industry/