Brexit impact on the financial services sector

BY Richard Summerfield

As 2016 progresses, the UK is heading into a period of doubt around its membership in the EU. The June referendum on Britain’s place in the bloc is approaching, and the only certainty is that no one is certain what exactly will happen should the country opt to leave.

In the latest in a number of papers concerning the referendum, TheCityUK and PwC have teamed up to present a report detailing the potential impact of a ‘leave’ vote on the UK’s financial services sector. Given the country’s reliance on the financial services space as a cornerstone of the national economy, the report does not make for pleasant reading.

According to the report, 'Leaving the EU: implications for the UK financial services sector', Britain could lose up to 100,000 jobs in the financial services space by 2020. Brexit could also reduce the sector's contribution to the national economy by up to £12bn.

The report echoes claims made by PwC in a paper published in March. Chris Cummings, chief executive of TheCityUK, said “Major firms from across the world come to London to access Europe’s single market, bringing with them jobs and investment. While Brexit may not be ruinous for the UK economy, it does risk damaging the UK-based financial services sector, particularly over the short term, delaying investment decisions and reducing activity. It also threatens the overall competitiveness of the UK as a place to do business.”

It is this suggestion of delaying investment decisions and reducing activity which may be most damaging to the financial service industry and London’s position as a global economics hub. Will foreign firms want to maintain a ‘European’ presence in a country outside of the EU?

Major US firms Goldman Sachs and JPMorgan have already issued warnings about the potential impact of a Brexit on their UK operations. "We believe that a key risk to London retaining its status as a financial hub is an exit by the UK from the EU. In common with financial institutions across the City, our ability to provide services to clients and engage in investment activities throughout Europe is dependent on the passport that London-based firms enjoy to operate on a cross-border basis within the Union. If the UK leaves, it is likely that the passport will no longer be available, thereby forcing firms that wish to access EU markets to move their operations to within those markets", the American firms told the Parliamentary Commission on Banking Standards.

TheCityUK and PwC report goes onto suggest that the financial sector would still grow should the UK leave the EU, however the value of the sector’s activity would be lower in 2030 than it would be should the country remain inside the EU.

Report: Leaving the EU: implication for the UK financial services sector

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