Brexit – good reason to be concerned or business as usual?
Throughout this long and arduous Brexit process we’ve been offered many insights and predictions from all sides of the political spectrum. Some true, some not so true and some blatantly false. This is no different when it comes to speculation over the future health of a thriving UK financial services industry in a post-Brexit environment.
The financial services industry is a huge component of the UK economic build, contributing £176 billon to the UK economy in 2015 which represented 10.7% of economic output. The sector also provides huge support to the labour market, employing over 2.2 million people, with two thirds employed outside of London. No surprise, Brexit has been a significant concern for the industry and one which many believe could be vastly amplified if the UK does indeed depart from the European Union.
UK financial services legislation is derived from the EU and is highly integrated. Currently, all members of the European Economic Area (EEA) can access each other’s markets using ‘passporting rights’ without seeking regulator approval. The key principal underpinning EU financial services passporting is the Markets in Financial Instruments Directive (MiFID II). Although the UK has its own regulatory bodies including the Financial Conduct Authority, a large part of the country’s financial services is regulated at EU level.
If the UK does depart from the European Union, one thing is for certain – there will be change. The trading relationship between the two will materially alter, ensuring businesses will need to adapt, some more than others. The implications for the UK are vast as most of its trade, with around 55 non-EU countries, is conducted through deals with the EU that will no longer be valid once the UK leaves. As it stands, the outcome of Brexit is far from known. As a result, it’s hard to define what the exact impact will be on the conduct of business across the sector.
If Article 50 is extended there will be more time for preparation and understanding even though new terms would still not be clear.
On the flipside, if a deal is forged, which at present seems unlikely, a transition period will be imposed which will ensure adaption to a new regime is possible.
A no-deal Brexit would be the worst case scenario for the business community and general public, however, it’s clear from recent developments in Parliament that such a situation would be vehemently opposed and avoided at all costs.
Following Speaker of the House, John Bercow’s recent move to block Theresa May attempting a 3rd vote on her withdrawal agreement, it’s highly likely Article 50 is extended. Even though this means uncertainty will simply be prolonged, it does however, allow more time for businesses to somewhat prepare for what lies ahead. A large amount of our corporate clients, not just within the financial services sector, have used the stalemate in Parliament to take time to manage their currency exposure to a deeper extent. Ultimately, this has led many businesses to ensure they remove risk where practically possible, in our case, we ensure any adverse movements created by any of the outcomes discussed above, are eliminated or minimised through effective currency management.
On balance, there are sadly good reasons to be concerned but through active and in-depth preparation, companies can ensure that whatever the Brexit outcome their business functions as usual.
Written by Vivek Savani, Senior FX Dealer. All statistical data taken from: TheCityUK 2019
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The details expressed in this article are for information purposes only and are not intended as a solicitation for funds or a recommendation to trade. Cornhill International Payments limited accepts no liability whatsoever for any loss or damages suffered through any act or omission taken as a result of reading or interpreting any of the above information.
The details expressed in this market report are for information purposes only and are not intended as a solicitation for funds or a recommendation to trade. Cornhill International Payments limited accepts no liability whatsoever for any loss or damages suffered through any act or omission taken as a result of reading or interpreting any of the above information. Cornhill International Payments Limited is a limited company registered in England and Wales. Registered number:6260585. Registered office: 4th Floor, 2 America Square, London, EC3N 2LU. Cornhill International Payments Ltd is authorised by the Financial Conduct Authority for the provision of payment services under the Payment Services Regulations 2017 (Reference number: 504494) and supervised by the Financial Conduct Authority under the Money Laundering Regulations 2017.