A lack of financial services deal providing equivalence may not be the source for concern originally thought
The Bank of England are planning on removing complexities for prudential policies for smaller lenders, and PwC and KPMG have vocalised confidence for London to remain a financial services leader in Europe post-Brexit. These firms are advocating that even without an equivalency agreement, concerns for the sector are lessening to that of a few months ago due to confidence in the City.
Initially, predictions were made for an exodus of jobs from the financial sector to the likes of Brussels and Amsterdam post-Brexit. However, London has shown its capability to adapt and seize an opportunity. Consequently, this supposed ‘exodus’ has been relatively small with EY reporting that only 7,600 financial service roles have been moved from Britain to the the EU since 2016. This, as well as the UK’s extraordinary economic recovery this year is quelling rumours that London will lose its dominance as a financial services provider in Europe post-Brexit despite the possibility of a lack of equivalency agreement.
Chris Biggs, partner at consultancy and accounting disruptor Theta Global Advisors comments on the impact Brexit is looking like it will have on the financial services industry in the UK and how the sector should be carefully treading the line as it adapts:
“Concerns about a lack of equivalency agreement comes as a major worry for the City, however, London will survive. While it’s sad to see the volumes of EU share trading drop – likely due to the EU wanting to see what the UK would do ‘differently’ – this ‘equivalence’ debate becoming a political argument rather than a constructive negotiation as to what is best for the wider markets is concerning, but should not negate the innovation that we have always seen in London.
Overall, I don’t think it is reason to panic, London has a depth of talent which is second to none, and is always creative in capitalising on opportunities created by change. If the worst should happen and no sensible deal is struck, then London should look for ways to position itself as the favoured place to do business and trade.
In the event that financial services don’t reach a sensible deal with the EU, the UK may move towards a ‘lighter touch’ financial regulatory environment, perhaps in the hope of attracting more business. This would potentially provide less safety and security to investors, and a risk of poor market conduct and behaviour – in the long run, this would lead to a loss of confidence in the UK being a ‘highest of the high’ regulatory financial services environment and loss of trade.
Alongside other impacts, reduced financial institution activity, and the type of trades and structures firms can provide could impact on the attractiveness of the UK as a place for professionals to work. The service sector is thought to be up to 80% of the UK economy, and while large chunks of this will remain unaffected, a loss in prestige for the City could push away the best of the Professional services as well as finance.”