On the 23rd of June 2016, the United Kingdom held a referendum to decide on the future of Great Britain. As stated in the journal, ‘The economics of international disintegration by Thomas Sampson (2019)’, “Brexit is the withdrawal of the United Kingdom from the EU’s supranational political institutions and will lead to the erection of new barriers for the exchange of goods, services, and people with the remaining 27 member states”. This change has an impact on everything in the UK and the EU, including the financial, economic, political and social landscapes. Therefore, the financial industry has to undergo a transformation to be able to keep up with the change. The role of the financial industry is to keep the functioning of the economy through taking funds from savers and lending it to borrowers.
Brexit is believed to be a slow-moving process; the original vote was in 2016 and it is still not legally confirmed of the separation between the UK and Europe. For those in the financial industry Brexit brings a lot of worrying due to the changes that it can cause in the sector. The most important issue that will arise due to Brexit, in the financial sector is passporting. As explained by the author, Toby Smith, “passporting is the process of British - based financial institutions (e.g. Banks and management firms) are able to sell their goods and services to Europe without requiring a legal license or approval”. Over the years it has been estimated that “nearly 5,000 firms in the United Kingdom rely on passporting to conduct business with the rest of the European Union. More than 8,000 firms in the rest of the European Union trade into the United Kingdom using passporting”. With Brexit now occurring, it looks as though passporting will come to an end and therefore the UK would have two options to move forward from this, they would either need to agree on a Norwegian or Swiss deal. The Norwegian deal would allow the UK to be a member of the European Economic Area and to honour its associated rules. However, the Swiss deal would mainly focus on the bilateral trade agreements. With recent comments made by members of parliament, it is unlikely that the UK would be able to get a swiss deal due to Switzerland originally making the deal when they entered the European Union, however this is different for a country whom is leaving the EU. All of the deals made in the past have taken long periods to take into effect. Although, securing Brexit is a long process, once it is made legal everything in the financial sector will move quickly, meaning that the UK need to be ready with their choice of getting trade in and out of the country without effecting too many UK businesses.
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Regulatory is another reason for why Brexit will not affect the financial industry for the better. In previous years regulatory has been the strength of Britain, it is the reason for why London became the world’s financial capital. Regulatory of the UK meant that the labour laws were far more relaxed than other countries. However, with the change of Brexit, Britain will have to make up for over 40 years of European regulations and trade deals. The main reason for the vote of ‘leave’ was so that new regulators could be formed which means that Britain will be free. This therefore requires a lot of time and as stated above, the financial industry do not have the time to wait around once Brexit hits.
Another reason for why Brexit may cause major damage to the financial sector is that there is the possibility that it will set off a dangerous process of brain drain. Brain drain is one of the reasons for how London rose to be the world’s financial capital. With the introduction of Brexit, there could be a change in where the financial capital is. This is due to the possibility of requiring visas and the uncertainty for foreign employees. As the financial industry in London consists of a range of cultures, Brexit can affect those people from entering the UK and therefore not being able to be work in the capital that it is based in.
On the other hand, Brexit can be good for the financial industry as it creates more opportunity for citizens in the UK. It improves the global trade agreements, allowing more selective immigration which can increase the amount of jobs available on the British job market. More jobs increase the economy of the country which increases the financial side of the country. The average person in Britain loses hundreds of pounds a year due to VAT added on by the EU. Being out of the EU would mean that Britain as a whole will save a lot money which can contribute other things including the financial and medical sector of the country.
With Brexit, the UK has the opportunity to expand its businesses to other countries such as Japan, China and America. Meaning that it has the opportunity to expand its financial capital of London to other growing countries.
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