Brexit Breakfast: The City is Taking a Perspective Frequently Seen on Office Mugs
When Mark Twain’s obituary was published prematurely, he famously responded “The reports of my death are greatly exaggerated.”
After the initial shock of the Brexit referendum, there were a number of sensational predictions of the consequences of the vote on the UK Financial Services Industry. Three months later, and it seems that at least some of these may have been exaggerated. Industry leaders in the City of London have reported that comprehensive contingency plans were in place for the referendum - but the predicted cash outflows and customer losses just didn’t happen. Additionally, the reported job losses have been much less than predicted and investment programmes, in the main, have carried on uninterrupted.
Similarly, we have seen an increasing number of more positive UK economic indicators and some cautiously optimistic sentiment/statements in the press. A recent example is Moody’s who stated that “…we expect the impact of formal withdrawal of the UK from the EEA to be limited for most UK banks.”
So what has been happening over the past three months? It is clear that Financial Institutions have been focussing on their clients: Industry Leaders highlighted how Financial Institutions are prioritising excellent client service, regular communication, and continuity of service. They have also been working hard to ensure that their clients know that they will continue to offer all of this - regardless of how Brexit plays out. Within Financial Institutions there has also been a lot of ‘scenario planning’: assessing the challenges and opportunities presented by the myriad of ways in which the UK can sever its membership of the EU.
In addition, Industry Leaders reported that they have tried to capitalise on changes that have come about as a result of Brexit. Several Leaders reported that the fall in the GBP exchange rate has been good for their business with startups, with Fintech investment funds particularly benefitting.
What hasn’t happened yet is Financial Institutions making wholesale changes to their businesses and associated technology to cater to Brexit. Industry Leaders do not underestimate the complexity or potential costs of Brexit (e.g. it has been reported that laws impacted by Brexit will run into the tens of thousands) but they are clear that it is too early to make substantive changes yet.
The following two factors were highlighted: the first of these is the uncertainty regarding the relationship the UK will want to have with the EU after Brexit. If the UK were to agree to a relationship, which included EEA membership and single market access, the impact to the City of London would probably be quite limited. A more comprehensive severance from the EU would have a bigger impact, requiring more changes and investment. Currently, the prevailing view seems to be that the UK will not retain unfettered single market access – however there are interest groups and politicians on both sides of the debate and the outcome is far from certain.
The second factor is uncertainty within the EU itself. Since the UK referendum, we have seen a growing challenge to the political status quo of the EU and established Europhile leaders. In addition to poor election results for leaders such as Angela Markel, there have been numerous calls for referenda or reform coming from Italy, Germany, Holland, Denmark, France, Switzerland and others. The EU is also involved in an increasingly bad tempered spat with Hungary and trade talks with the USA have all but broken down. With this level of challenge to the status quo, it is hard to know the exact negotiating approach the EU will take towards the UK when clause 50 is eventually triggered.
So while this uncertainty persists, the City of London Financial Institutions are doing what they do best: focussing on their clients, running their businesses, innovating & investing, and preparing for change when it comes. Rather than Mark Twain’s quote maybe the best summary of the approach the city is taking is one frequently seen on office mugs – “Keep Calm and Carry On®”.
Watch Balazs Fejes, Co-Head Global Business, EPAM, discuss the possible significance of Brexit on the Financial Services Industry.
Watch Laurent Kssis, ETF Trading and Capital Markets Advisor, discuss the possible implications of Brexit on the UK investment environment and FinTech scene.
Keep Calm and Carry On is a registered trademark of Keep Calm and Carry On Ltd.