RiskBrexitReport applies figures to cost of Brexit

Report applies figures to cost of Brexit

The potential impact on the financial services industry of the UK exiting the European Union (EU) is assessed in an analysis from management consultancy Oliver Wyman.

A newly-published report from global management consultancy, Oliver Wyman, analyses Brexit’s potential impact on the UK-based financial services sector.

Commissioned by TheCityUK, representative body for the UK-based financial and related professional services industry and developed with input from its senior Brexit steering committee, senior industry practitioners, and the major trade associations, the study quantifies the impact of potential regulatory options arising from Brexit in terms of jobs, tax and industry revenues.

It estimates that a Brexit where the UK is outside the European Economic Area (EEA) but delivers passporting and equivalence – allowing access to the single market on terms similar to those that UK-based firms currently have – will cause only a modest reduction in UK-based activity. In this scenario, revenues are predicted to decline by up to £2bn (US$2.5bn) (2% of total wholesale and international business), 4,000 jobs would be at risk, and tax revenues would fall by less than £0.5bn per annum.

Under conditions where the UK moves to a third country arrangement with the EU, without any regulatory equivalence and its relationship with the EU is defined by terms set out under the World Trade Organisation (WTO), up to 50% of EU-related activity (£20bn in revenue) and an estimated 35,000 jobs could be at risk, along with £5bn of tax revenues per annum.

When taking into consideration the knock-on impact to the whole financial services ecosystem – the possibility of shifting of entire business units, or the closure of lines of business due to increased costs it could almost double the effect of Brexit.

“Our work provides a robust and definitive fact base to facilitate the dialogue between the sector and policy makers,” said Sir Hector Sants, vice chairman, Oliver Wyman. “It highlights that the impact of the UK’s exit from the EU on the UK-based financial services – and the jobs, income and taxes it generates – will vary dramatically with how much access to the EU is retained.

“It is in everyone’s best interests for there to be a positive outcome to the negotiations that is mutually beneficial to the UK and the EU, causes minimum disruption to the industry and benefits customers who have come to rely on the UK as a uniquely skilled and connected ecosystem for financial services.”

Separately, Christopher Burke, chief executive officer (CEO) of financial management and tech consultancy Brickendon suggests that the UK financial services sector should not wait to see how Brexit negotiations unfold, but prepare for change now by considering their options.

This might include potentially relocating part of their business to other EU member states. Burke claims that relocation could save firms as much as 60% in their operating costs.

He adds that incentives to move have grown in light of reports that prime minister Theresa May is unwilling to give the industry special treatment during Brexit negotiations and is not keen to push for a transition period to prepare for Brexit.

“This only emphasises the importance of preparing for the change now,” says Burke. “This is not a time to wait and see, it is a time to act – the window for maximising both the risk mitigation options and competitive edge is closing. There are a range of things to consider, such as market access, potential unwinding, regulatory implications, staff and functions previously off-shored to other European member states, location of clients and competition for talent.”

 

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