The financial services industry is of great importance to the economy of the UK, contributing £119 billion to the UK economy in 2017, which was 6.5% of total economic output. But, the vote to exit the European Union could see the sector face significant difficulties. According to a Parliament Brexit and Financial Services research briefing, the “gulf between what the industry wanted at the start of the process, and what it looks as though it will achieve now is quite wide”.
Currently, as with every market across the nation, the future of the financial services sector depends heavily on the relationship Britain shares with the EU following Brexit. As it stands, the Financial Conduct Authority (FCA) is working closely with the government, ensuring the firms it oversees continue to abide by UK law obligations, including those that come from EU law, while also preparing for any further legislation that is yet to come into effect.
Business as usual?
However, while business seems to continue as ‘normal’, there are several companies within the financial services sector debating how they will continue to operate within the UK. Hiring dedicated project teams to handle the outcomes of Brexit, firms are trying to determine which operations will need to be moved outside of the UK in order to continue to serve customers as they have previously.
According to an article by the Evening Standard, there are at least 30 banks and financial firms that are set to move their EU headquarters outside of the UK. This could see over 10,000 jobs lost within the sector, and the London economy will take a hit of around £700 billion. The European Banking Authority, the regulator of the euro-zone area, also has plans to move its London headquarters outside of the UK within the first two years following Brexit.
Financial Services Insolvency Statistics
Since the year of the referendum in 2016, the financial services sector has seen a grand total of 808 companies become insolvent. In 2015, the year before the referendum, insolvencies were down year-on-year by 320 since 2011.
Stats Source: Gov.uk Insolvency Statistics
Following this decline, a spike in 2016 saw 266 companies become insolvent, which was 19 more than in 2015. Surprisingly, in 2017, the rate of insolvency seemed to decline back to the same levels seen in 2015. This suggests that the initial reaction to Brexit following the referendum had a significant impact on the industry, and began to level back out during 2017.
However, at the end of 2018 as we drew closer to Brexit, these numbers have grown dramatically, with 295 total insolvencies within this sector alone. This can be attributed to the uncertainty the sector faces as to whether operations can continue to be carried out within the nation, or whether it will be necessary to relocate. Relocation is a costly feat and looking at the figures outlined in the table above, it could suggest many are unable to do so.
What does the future look like for the financial services industry?
That famous, ‘it depends’ phrase comes back into play here as we look to the post-Brexit future of the financial services industry. As Britain continues to work for an agreeable Brexit deal, John Glen, the UK financial services minister stated “I do have every confidence that we will in the end be successful”, at an ISDA derivatives industry conference.
As Brexit approaches however, with no sign of a deal coming in the near future following the vote on amendments on Tuesday the 29th January, banks, insurers and asset managers in Britain are beginning to open new EU hubs to help ease disruption. Many feel concern that Britain’s financial sector will shrink over time following Brexit. (Reuters)
We’re beginning to see big players in the industry take action due to these concerns. Barclays, which in 2016 stated it had absolutely no plans to move any of its jobs outside of the UK has now said £166 billion worth of assets will be moved to Dublin as it “cannot wait any longer to implement its Brexit contingency plans”.
As a deal starts to look less and less likely, with just weeks to go before Britain plans to exit and an amendment seeking to extend this departure data rejected, Britain could be set to lose even further valuable contributions to the economy from this sector.
Uncertainty is still as high as ever, and as financial services continue to struggle to plan for the future as Brexit draws nearer, it’s likely we will see an increase of insolvencies again in 2019. If you’re worried about your company during this period of uncertainty until a deal is reached, then we recommend you seek some professional advice. Get in touch with one of our business rescue experts today for some free initial advice on what you can do to reduce the impact of Brexit on your business.