With the commotion of the Brexit now at one with the pulse of our city, not a moment goes by without the release of another theory, and more speculation. Whether it is scaremongering, fact, or fiction, each update seems to add to the lack of clarity and increase of confusion. The stakes are high not only for London, or the United Kingdom, or even Europe, but the whole world. They’re especially high for the Financial Services sector.

While the topic is rife with uncertainty, one thing is certain, our financial services are highly exposed to the outcome of Thursday’s vote. The ball hasn’t dropped yet, but the pound has already started falling, investment has slowed, and there has been some migration of activity away from London to other financial centres in Switzerland, Singapore, Dubai, and New York, but funnily enough, there is very little talk of any activity going to the rest of Europe.

The UK currently dominates as Europe’s major international financial centre and is a leader in most financial services areas. One example of this can be found in the cross-border bank lending arena, where the UK holds a 17% international market share, compared to 9% for France and 9% for Germany.

From a Hedge fund point of view, they amount to an 18% market share by the UK compared to 1% for France. The UK dominates wholesale financial services and has done for decades. It also dominates the world’s foreign currency trading market, a trend that accelerated initially with the creation of the EU single market and again with the arrival of the Euro. Today, it is by far the biggest centre in the world for trading the Euro. Foreign banks could face having to replace as much as 108 billion euros ($122 billion), according to Manuel Trojovsky, a Munich-based analyst at UniCredit Bank AG. It’s at this point one can question not if the United Kingdom can survive without Europe, but if Europe can survive without the United Kingdom.

Despite the UK’s financial dominance, talk of the Brexit has brought turmoil within our financial services sector, feeding fear into what is already a very risk adverse sector. Opinions remain divided as follows:

  • JP Morgan and Goldman Sachs have invested heavily in the Britain to remain in Europe campaign, warning that the Brexit could result in a 15%-20% collapse in the value of the sterling.
  • Deutsche Bank has setup a Work Group to identify if it may be worth moving parts of its business elsewhere and at the moment remains undecided.
  • HSBC is considering moving 1,000 jobs to Paris. This figure can’t be swept under the carpet. However, when you consider that it entertains 250,000 jobs in total, 45,000 of which are in the UK, it is a lot easier to digest. Further to this, the bank has recently committed to basing its headquarters in London.

US bank Citigroup is transferring its European retail banking headquarters to the Irish capital, however a closer look reveals that this isn’t due to the Brexit, but due to benefit from lower costs and capital requirements. UK banks are expected to hold a higher level of cash in reserve than other European countries, and this requirement is beginning to cause some banks to move their headquarters from the UK.

In general, concerns are high over the loss of the UK’s access to the EU Single Market, and the loss of passporting rights are inflaming fear. Leaders have advised that the UK will retain the so-called "passporting rights" if it remains a part of the European Economic Area (EEA), this will enable banks and trading services that are based in London to continue to operate across Europe. This compliments Helena Morrissey’s (Chief Executive of Newton Investment Management) thought, she advised “The UK can thrive, not just survive out of the EU, as long as we don’t flounce out of the door never to speak to anybody again”.

With true facts and theories being diluted with exaggerations, scaremongering, and assumptions, they are proving to be a catalyst for all the turmoil and swaying us away from the truth. Previously when the euro was first launched, our pronounced financial experts espoused that the United Kingdom would not be able to survive without the currency. However, the outcome proved very different, activity migrated here in overwhelming numbers, diminishing most of continental Europe as a hub for wholesale finance.

The outcome of the UK leaving the EU cannot be certain, the media is being flooded by plenty of think tanks, and lobbies each feeding the titan with their own assumptions, and predictions, but just like with any change, we believe here at Xceed Group that what makes it a success, is not the change itself, however the way it is managed, and delivered. Only with commitment to improving change management will it allow businesses to properly mitigate any risks, seize the opportunity, realise the benefits, and continue to thrive again.

Would you like advice on how your company should manage Brexit? Contact us