The British public has chosen to leave the EU. As a result, we are now more rather than less reliant on the major players in the UK economy, in particular financial services.
The industry has been bracing itself for short-term economic and market volatility in reaction to this outcome. It’s going to be testing, but the UK financial sector is well-capitalised, our systems are resilient, and our regulatory structure is well-tested and held in high regard across the globe. Thanks to all the work the industry and regulators have done post-financial crisis, we are in as good a position as any to weather that storm.
Looking beyond the current volatility, the role the industry plays in advising politicians and policy-makers in negotiating our exit is going to be critical. For financial services, this is going to be a series of major operations and it is in all of our interests that such an important sector of the UK economy does not get permanently injured in the process.
In theory, there is no reason why the financial services industry in the UK shouldn’t continue to prosper outside of the EU. Our financial infrastructure, connectivity to international markets, skilled workforce, optimal time zone, and trusted legal system and regulatory environment will all continue to work in our favour.
Many of the most senior regulatory and policy roles at a global level have been held by Brits and, as a result, we have great understanding and influence in global markets. And we are leading the world in financial innovation and fintech, with some of the most progressive policy and regulation and a strong spread of promising new businesses.
But all of that said, with open access to EU markets no longer guaranteed, we are going to face significant headwinds. We will face difficult questions about financial institutions’ continued ability to use the UK as a gateway to Europe, and the equivalence of the UK regime to a more and more integrated Eurozone.
We run an annual survey of inward investors to the UK, and it’s clear from their answers from earlier this year that certain issues are going to be central to the ongoing success of the UK on the world stage:
Access to the Single Market – Almost three quarters (72 per cent) of financial services companies said that access to the Single Market was important for them, and 44 per cent agreed it was “very important”.
Perception of foreign investors – 43 per cent of financial services companies said that, if the UK were to leave the EU but retain access to the Single Market on slightly less favourable terms, it would make the country less attractive as a destination for investment.
Regulatory uncertainty – During the negotiation period there will, of course, be uncertainty for financial services around the extent of regulatory change we will actually see. The UK’s leading role in shaping the regulatory agenda for financial services means there is a commonly-held belief that very little will change, but the sooner we have certainty on that, the better.
Innovation and disruption – 73 per cent of investors identified fintech as a primary area for investment. In the UK, financial services has a long history of adaptability and innovation, and this has been central to our economy’s success. We had the first exchanges, central bank, and coffee houses that gave merchants access to finance. We printed the first double-sided bank note, launched the first mass market current account, overdraft and credit vouchers, opened the first ATM, telephone banking, and the first internet banking service. We know from our own research for the Treasury that the UK is leading the way in fintech, but that could change. Our market-leading position needs to be safe-guarded.
I urge UK policy-makers to do all they can in the short term to help the industry. This should include measures to keep lending flowing, reassessing the applicability and perhaps pausing some of the post-crisis reforms and taxes.
Irrespective of their own personal politics, leaders across the UK’s major industries will be assessing their businesses’ and industries’ competitive positioning in this new landscape. In financial services, there’s lots worth fighting for.
If we can maintain our confidence as an industry, remember all that we have learned through the financial crisis, speak with one strong voice in the market and at the negotiating table, then the world will see why financial institutions and investors can’t afford not to be here.