Recently, Goldman Sachs and many other big firms decided to relocate their head offices to places outside Britain. As Britain moves closer to officially withdrawing from the European Union, the most affected sector is bound to be its financial sector.
Today, almost half of the world’s
financial firms have their European headquarters based in London, and more than
1 million people work in the financial sector in the UK including services like
banking activities, insurance, asset management and market infrastructures.
With related professional services (accounting, legal, advisory, etc), the
total amount reaches 2.2 million people. The financial sector earned about GBP
200 billion (approximately 11% of UK’s GDP) in total revenues in 2015, half of which pertains to domestic
activities, while the other half includes international business related with
the EU and other foreign markets. This represents about 24% of all EU financial
services, and generates about GBP 60 - 67 billion (3.5% of GDP) in taxes each
year.
The financial services sector,
together with the related professional services sector, has developed over many
years into an interdependent and interconnected ecosystem comprising a large
variety of firms providing world-class services, products and advice. This
ecosystem brings significant benefits to financial institutions and to the
corporations and households they serve.
The high level of inter-connectedness
within this ecosystem means that the effects of any exit from the EU agreement
are likely to extend beyond business done directly with EU clients. Impacts to
one part of the ecosystem will invariably have knock-on effects elsewhere. For
example, a firm that loses its EU customers may no longer have the scale to
operate profitably in the UK, and so exit altogether.
Impact of the UK’s exit from the EU on
the financial services sector will vary dramatically with how much access to
the EU is retained. A high access scenario is likely to minimise disruption to
the sector, benefiting customers who have come to rely on the UK as a uniquely
skilled and connected centre for financial services. It would also enable the
UK to maximise the growth opportunities that could arise from the UK’s exit
from the EU as well as the continuation of the UK as a centre of regulatory
excellence.
In a low access scenario, the impact is likely to be much larger, and an impact to the ecosystem could magnify losses.
However, banks, insurers and asset managers have come to the conclusion there is no realistic chance of maintaining full passporting rights after Brexit that would allow them to sell all their services across the 28- nation bloc from Britain. Thus, Britain's finance industry has given up on efforts to keep full access to the European Union after Brexit and is pushing instead, for a more limited trade deal that would potentially exclude some financial products.
In a low access scenario, the impact is likely to be much larger, and an impact to the ecosystem could magnify losses.
However, banks, insurers and asset managers have come to the conclusion there is no realistic chance of maintaining full passporting rights after Brexit that would allow them to sell all their services across the 28- nation bloc from Britain. Thus, Britain's finance industry has given up on efforts to keep full access to the European Union after Brexit and is pushing instead, for a more limited trade deal that would potentially exclude some financial products.
TheCityUK, the country' most
powerful financial lobby group, in a recently published report, called for
limited market access for some finance sectors based on a pact, in which
Britain and the EU would accept each other's rules. This would keep the door
open for cross-border trading of stocks and bonds, and sales of certain other
products
There is likely to be fresh scope for exploring opportunities arising from new networks of trade and investment agreements that the UK will negotiate with its partners. Next generation agreements that embrace market access, regulatory coherence, and a range of new issues have the potential to play a vital role in delivering these benefits. It is therefore critical to bear in mind that there is a huge advantage to the UK from aligning with global standards of regulation, as these will prove to be the base on which future agreements will need to be structured.
