The UK’s exit from the single market is giving many of those working in financial services, particularly those in managerial or regulatory roles, sleepless nights. The loss of financial passporting rights for London is the greatest risk to London’s place at the centre of the financial world in living memory.
Theresa May’s speech about the UK’s Brexit negotiations had only a passing mention for financial services – referencing that the UK will seek a new agreement with the EU which may include “the freedom to provide financial services across national borders”.
The complication of forming a new arrangement has the capacity to be the stuff of nightmares. The UK is about to be under a ticking clock of pressure to create a service agreement which fits with some complicated regulatory regimes and aligns the competitive interests of London, Paris and Frankfurt.
The UK Government will also need to decide how much EU regulation which currently underpins so many parts of the sectors’ laws needs to be retained, rewritten, or scrapped. There also is the prospect that the UK will need to seek fresh partnership with a new as yet defined or formed capital market union – subject to the EU-27 continuing the CMU project post Brexit. Regulatory compliance is already a significant cost to any financial services institution; and barriers between the UK and EU will only add to that.
In the same week as May’s speech it was also the World Economic Forum at Davos. During the event there was a plethora of nervous / downbeat comments in the media from leading FS executives about job cuts in London. However it was also reported that May used the summit to arrange face time with a number of these executives. May was keen to discuss the potential to delay any decisions to pull jobs out of the UK until there was greater clarity on the prospects of the Brexit negotiations.
It remains to be seen if May is able to succeed on these multiple fronts, but it is clear that the UK’s financial services sector will be needing a number of variables turn their way to stop the worst case scenarios becoming reality.