The impact of Brexit on the financial services sector
In recent years, the financial service sector has gone through some significant changes. Technology has made it possible for processes to be streamlined by digital platforms and online marketplaces, which reduce human error and make the sector more efficient. But how will Brexit affect the industry, and are more changes on the horizon? We’ve taken a closer look to find out.
How important is the financial services sector to the UK economy?
Before considering how Brexit will affect the financial service sector, it’s important to understand just how important the industry is for the UK economy. At the moment, there are more than 2 million jobs being generated by the sector in the country, and a staggering £18.5 billion trade surplus was generated by exports of financial services to the EU, showing just how essential our ties with the rest of Europe are. Despite unstable economic times in recent years, Britain’s financial sector has been growing rapidly, particularly between 2006 and 2009, and it accounts for approximately 10% of the UK’s GDP at present.
What changes will Brexit bring?
With such a booming industry and strong ties to the rest of Europe, it’s hardly surprising that many industry experts are concerned about the impact of Britain’s exit from the EU on our economy. As so much of the UK’s financial service sector is also regulated by and complies with EU laws, it’s likely that some major changes will be seen throughout the industry.
Businesses all over the UK are considering, if not already doing, a relocation or expansion to EU territories. From Berlin, to Lithuania, Paris to Barcelona, companies are expanding their business abroad to make trading after Brexit far easier. Take NEX Markets for example – in preparation for Brexit, this financial company have put their trust in Amsterdam, and are setting up here to give one of their trading platforms (BrokerTec) a European presence. With the uncertainty still surrounding Brexit, it’s no wonder. After all, business want to keep trading, and if it takes expansion to just that, why not?
It’s pretty difficult to say exactly how the regulations currently in place will change. Many financial and banking rules are currently dictated by global regulators, and some are set by the EU. A lot of pro-Brexit industry experts have argued that the UK’s own regulatory standards are far higher than those set by the EU, meaning that there will be little difference once we leave the EU. However, some are concerned that there will be instability in the event of a global financial crisis, like the 2010 economic crisis and consequent recession, as both UK and EU regulators would need to work together to reach successful conclusions.
London is the UK’s financial hub, which means that the city is where any economic strain caused by Brexit will be felt first. It’s not likely that London will collapse as a financial centre post-Brexit, but the region could see a growing number of financial firms relocating. In the short term, Brexit isn’t going to have too much of an impact on the local economy as the centre is home to so many financial businesses which are there to take advantage of competitive advantages and support services.
At the moment, London’s booming financial services sector is a major draw for European workers. 12% of London’s employees are European – a large majority of them working in the financial sector. With potential difficulties arising for workers following Brexit, such as new visas being introduced, it’s possible that staff will seek employment in a more affordable EU country to live and work. Talent is, after all, highly mobile, which means that London is at risk of losing its extremely talented workforce.
Photograph by dtrevi0