It may well be New York, rather than the European Union who emerge from Brexit financially victorious, if negotiators for both sides don’t get pragmatic. The warning came from lawmakers, concerned that a lack of clarity concerning the future of relations between Britain and the EU, in the wake of Brexit, could result in financial firms and banks setting up subsidiaries and transferring workers abroad.
Financial Experts in the US
A UK House of Lords EU Committee report outlines the potential loss of expertise that would result from such moves, leaving a void in cities that are currently ‘far behind’ New York and London, like Frankfurt and Paris. This gulf would be difficult to fill and could leave these cities floundering as financial centres.
“EU firms rely on the services provided in the U.K., and pain caused to the U.K.’s financial sector will not be the EU’s gain, but New York’,” said Kishwer Falkner, head of the inquiries into the European Union financial affairs on the panel. In his statement, Falkner added: “We are in danger of a lose-lose scenario if pragmatism does not prevail.”
UK Financial Sector
Around 1.1 million individuals are employed by the U.K. financial services industry, which is 7% of the UK’s economic output. As an industry, finance is about to become the front line and fiercest battle for Brexit negotiations, with France, Poland, and Germany attempting to lure insurers and banks from London. Brexit Secretary David Davis, and Philip Hammond, the Chancellor of the Exchequer, have both vowed to ensure London retains its position as a global finance hub.
British Prime Minister Theresa May has been open and vocal in stating she will trigger the UK’s exit from the EU and the Brexit process before April. In light of this, the Lords panel have made it very clear that one of the earliest goals in Brexit negotiations must be to agree a transitional period to prevent U.K. based financial services firms from relocating on the basis of a worst-case’ scenario.
It is unclear whether their advice and warnings will be heeded, but the future of the UK financial sector in the wake of June’s Brexit vote is looking less certain with each passing week.
The effect of any changes in the UK financial sector will be felt across many underlying assets. The most obvious will be in the major currency pairs. GBP and EUR are already suffering against the USD and European in fighting over Brexit is likely to see that continue – particularly if it ends up benefitting New York directly.
Elsewhere, individual banking equities will be volatile. Some banks, with a global customer base, may see positive effects of relocation. Other, more European – or even UK – based operations may suffer.