This post originally appeared on LinkedIn
January 3, 2017
With Brexit uncertainties hanging over us, it’s difficult to forecast with any degree of accuracy what might happen to the UK economy in the future and in particular what will the effect be on the banking sector.
Ever since we woke up on the morning of the 24 June 2016 to the news that we’d be leaving the EU after 43 years of membership, there have been media comments and fears for the future of the City of London’s status as the world’s leading financial markets hub.
Jes Staley, Barclays’ American Chief Executive commented that there is no danger of it losing “its gravitational pull in terms of management of capital”. It’s easy to understand why given the City’s importance to the UK economy – the sector employs around 400,000 people, it’s worth £45bn (increasing to £61bn by 2021) to the UK economy or 3% of GDP and is home to 250 foreign banking and investment institutions.
The Big Question
The big question revolves around whether banks will be allowed to maintain their ‘passporting’ rights, which allow UK-registered firms to provide services in the EU without the need to set up a local subsidiary (and vice versa for EU registered firms). Banks are already starting to make contingency plans to work out the best way to determine whether they will start moving jobs abroad or move entire operations altogether.
A Lords committee report due out in December will urge that a transitional deal is struck with the EU ahead of final negotiations. Expecting organisations to wait until 2019, when the article 50 process is due to be completed, hinders business as companies want to know what will happen so they can adjust their business plans.
According to the same report, these decisions will start to be made in 2017. Any transitional deal would still require payment of contributions to the EU in return for access to the single market, what this will all hinge on will be whether there is a ‘hard’ or ‘soft’ Brexit landing and the deal that Britain finally agrees with the EU while negotiating its exit strategy. The concerns for the banking sector are over the future of the thousands of banking and investment jobs in the City.
Firms such as KPMG are already planning ahead, having set up a Brexit Solutions division, appointing one of its most senior partners, Helen Briggs, to the newly created role Head of Brexit.
What is your business doing to mitigate risk? I’d love to hear your thoughts.