This paper aims to analyse the impact of a no-deal Brexit regarding the Financial Services Industry. Given the significant global integration of the UK’s financial services industry as the largest exporter and the host of the world’s leading centre of financial services, the gained observations and experiences from the example of Brexit shed greater light on determining the consequences of deglobalisation on the financial services industry.
It will be assumed that no further agreements regarding Financial Services will be reached between the UK and the EU. Further, the impact will be analysed solely for the industries of the two directly involved parties, thus the EU and the UK. The UK will be considered as the exporting nation and the focus will be laid on UK-based financial services firms, which as a whole represent the UK’s financial services industry.
The remainder of this paper is structured as follows: after an initial introduction to Brexit and the development of the relationship negotiation; in the third section, the status quo of the financial services industry ante Brexit will be depicted. In this regard, the legal framework will be emphasised, and the mutual reliance will be identified. In order to forecast the future situation of the financial services industry after the transition period, the legal relationship under WTO terms will be thematised in the fourth section. Within this section, a focus will be laid on the possible legal paths of the provision of financial services. Based on the derived legal aspects and considering the political influences in the absence of any relationship, in the fifth section, a post transition period outlook for the financial services industry will be given.
Table of Contents
1. Introduction
2. Development of Brexit and UK-EU Relationship Negotiations
3. Status quo ante Brexit
3.1. The UK's Financial Services Industry's Reliance on the EU
3.2. The EU's Legislative Framework
3.2.1. Financial Services Passport
3.2.2. Free Movement of Labour
3.3. The City and the Ecosystem
3.4. The UK's Financial Services in the Eyes of the EU
4. Status quo post Brexit
4.1. Provision of Services into the EU
4.1.1. Classical Access to the European single market
4.1.2. Centralised Access under Equivalence:
4.1.2.1. Process of Equivalence Determination
4.1.2.2. Scope of Equivalence
4.1.2.3. Diverging from EU Rules
4.1.2.4. Politicisation
4.2. Human Capital
4.3. Other Third Countries
5. Outlook
6. Conclusion
Research Objectives and Core Topics
This academic paper examines the economic consequences of deglobalisation on the United Kingdom's financial services industry in the context of Brexit, specifically focusing on a "no deal" scenario. The central research objective is to analyze how the loss of passporting rights and the shift to third-country status impact the competitive landscape and operational viability of UK-based financial firms.
- Analysis of the UK's financial services industry dependence on the EU market.
- Evaluation of the EU's legislative framework, including passporting and equivalence mechanisms.
- Assessment of the challenges regarding human capital and recruitment post-Brexit.
- Investigation of strategic firm-level responses, such as relocation or restructuring.
Excerpt from the Book
3.1. The UK's Financial Services Industry's Reliance on the EU
Financial services is a crucial sector of the UK's economy; as beyond its vital role for the wider national economy, e.g. through the provision of capital, it also accounts for 7-12% of the UK's GDP (House of Lords, 2016). Further, about 1.1 million people are employed in the UK's financial services industry, representing 3.1% of total employment in the UK (House of Commons, 2019). In addition to that, Oliver Wyman (2016) analysed that the financial services industry generates annual revenues of about 200 billion pounds resulting in 60 to 67 billion pounds in taxes making financial services a significant source of income for the UK Government.
Reported in Table 1, those revenues in financial services generated by UK-based firms in the year of 2015 are further itemised by their sectoral breakdown. It can be seen that the contribution to the overall 45 billion pounds of revenues generated in relation to the EU differs substantially by subsector. In fact, the subsector of ‘Market Infrastructure’ (10.5 billion pounds) generates more revenues related to the EU than the two subsectors ‘Asset Management’ (5.5 billion pounds) and ‘Insurance’ (4 billion pounds). Nevertheless, by generating more than half of all EU-related revenues, the subsector of ‘Banking’ (25 billion pounds) is by far the most relevant element of the UK's revenues related to the EU. Hence, measured by the revenue generated, ‘Banking’ represents the UK's most substantial component of financial services related to the EU.
Summary of Chapters
1. Introduction: Outlines the rise of global integration and the subsequent move toward deglobalisation, framing the research on the impact of a no-deal Brexit on the UK financial sector.
2. Development of Brexit and UK-EU Relationship Negotiations: Traces the political history from the 1973 accession to the withdrawal process initiated by Article 50.
3. Status quo ante Brexit: Analyzes the pre-Brexit state of the financial sector, emphasizing its high integration with the EU, the role of passporting, and the significance of the City of London.
4. Status quo post Brexit: Investigates the legal and operational challenges for firms, specifically regarding service provision through equivalence, loss of passporting, and the movement of human capital.
5. Outlook: Provides a forward-looking perspective on the operational challenges and strategic shifts firms must navigate in an environment of increased regulatory uncertainty.
6. Conclusion: Summarizes findings, noting that no substitute for full EU market access exists and that deglobalisation will significantly reshape the UK financial ecosystem.
Keywords
Brexit, Financial Services, Deglobalisation, No Deal, Passporting, Equivalence, Third-country status, Market Infrastructure, Banking, Asset Management, Human Capital, Regulatory Framework, European Union, United Kingdom, Economic Output.
Frequently Asked Questions
What is the core focus of this research paper?
The paper examines the economic and regulatory impact of Brexit on the UK financial services industry, specifically under the assumption of a "no-deal" scenario.
What are the primary thematic areas explored?
Key themes include the reliance of UK firms on EU market access, the transition from passporting to third-country status, the politicisation of equivalence, and the potential relocation of financial activities.
What is the main research question?
The paper seeks to determine the impact of a no-deal Brexit on the UK financial services industry, particularly regarding market access and regulatory alignment.
Which scientific methods are utilized?
The author performs an empirical and descriptive analysis of existing trade data, legal frameworks (EU directives), and industry reports to forecast future economic consequences.
What does the main body of the work cover?
It covers the historical development of Brexit, an analysis of the industry's reliance on the EU, the legal mechanisms of equivalence versus passporting, and the risks to the City of London as a financial hub.
Which keywords best describe this study?
Core keywords include Brexit, financial services, deglobalisation, passporting, equivalence, and the City of London.
How does the "equivalence" mechanism differ from passporting for UK firms?
Equivalence is described as a non-automatic, unilateral process prone to politicisation, offering a narrower and less stable scope of market access compared to the broad, reliable passporting rights enjoyed pre-Brexit.
Why does the author argue that relocation is a likely consequence for many firms?
The author suggests that since equivalence does not provide the same depth of market access as the single market, firms requiring continuous access to EU clients will find physical relocation to an EU member state the most reliable strategy.
- Arbeit zitieren
- Lukas Kirchner (Autor:in), 2020, Brexit’s Winners and Losers. An Empirical Analysis of Economic Effects of Deglobalisation on the Financial Services Industry, München, GRIN Verlag, https://www.grin.com/document/990925
