Public statements allay concerns about immediate impact of Brexit on Financial Services, but negotiation priorities vary across sectors
- EU passporting rights most important for the majority of financial services firms
- But wider policy priorities across the industry differ
- Second order economic impacts of the referendum result are still to feed through
Omar Ali, UK Head of Financial Services, EY, comments: “The industry has to date been speaking with one voice which is essential. But as the exit strategy is developed, understanding the needs and nuances within the wide variety of companies that make up the sector is going to be really important. From our tracker and our work with major players across the industry it’s fair to say the context for the negotiations is complicated.”
Passporting key for decisions on staffing and future scale of UK operations
The main public policy asks of financial services companies appear to be diverging dependent on sector. Speed and political decisiveness is of paramount importance to some of the largest insurers. However, retaining the ability to passport products is the clear priority for investment banks and asset managers.
Investment banks, asset managers and life insurers have been very vocal about their commitment to the UK - a quarter of the 47 major investment banks followed in EY’s Financial Services Brexit Tracker have made public commitments to maintain a presence in the UK. But investment banks and asset managers have also have raised the possibility of reviews or the restructuring of operations in the UK and these potential reviews seem to be contingent on passporting; five of the 20 largest global investment banks have explicitly cited passporting as a crucial factor in their decision-making about the scale of their presence in the UK.
The key issue for retail banks appears currently to focus on EU workers’ rights. Two of the “Big Five” high street banks have explicitly called for clarification on EU workers’ rights in the UK following the referendum result.
Immediate impact of the referendum result not as stark as many had feared
It is too early to quantify the long term effects of the EU referendum, but the Financial Services Brexit Tracker indicates that the immediate impact of the referendum result has not been as stark as many initially feared.
Since 24 June, 40% of the largest insurance companies operating in the UK have publicly said that the Brexit vote will not have a material impact on their business, with over 10% identifying potential positives and opportunities for the companies. Only 16% have voiced concerns over the potential negative impact on their business performance.
Only a fifth (21%) of the major investment banks tracked by EY have voiced concerns over the future or highlighted a negative influence from Brexit on their financial performance in recent earnings statements. Indeed, 15% of investment banks considered the impact to date to be neutral or did not anticipate dramatic repercussions for the company, adopting a ‘business as usual’ approach.
Commenting on the findings, Omar Ali, UK Financial Services Leader at EY, says: “The impact of the second order effects of the referendum result - lower interest rates for longer and the prospect of slower economic growth - were not reflected during the recent earnings season for financial services companies. That said, it is reassuring to see that, two months after the vote, companies across the sector – particularly within the insurance community – seem broadly confident in the ability of their business to weather the initial storm. Indeed, the industry has responded with the pragmatism, ingenuity, and day to day focus on serving its customers, that has underpinned the UK’s longstanding success in financial services, and some are beginning to highlight areas of opportunity.”
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