"Although everyone has their parachute ready, the industry is still seeking the softest landing, with a strong future trading relationship that reduces the ripple effect on the economy."
Its research shows that over the last six months, firms have pressed pause on announcing any operational changes to their businesses in response to Brexit.
Of the 222 firms monitored by the tracker, the number publicly confirming relocations of staff and operations has only risen by one since July 2019, compared to an increase of 11 in the first half of 2019. The proportion of firms that have said they are considering or have confirmed relocating operations and/or staff to Europe has now seemingly stabilised at 41%.
The silence on new operational announcements contrasts with an increase in companies making public calls for specific outcomes during the negotiations. Between March and August 2019, just two companies expressed concerns, but, between September and December, eight firms have voiced their position on the necessary steps they feel the Government should take to safeguard the UK’s financial services sector post Brexit.
Since the Referendum in 2016, 22% of companies monitored have publicly voiced concerns over the negative impact which Brexit is having or will have on their business. Of these, 17 are investment banks, universal banks and brokerages, and 11 are wealth and asset managers. Specific factors cited include reduced profitability, asset outflows, deferred M&A, a slowdown in lending, and customer losses in markets outside of the UK.
Omar Ali, UK financial services leader at EY, commented: "Our data suggests that firms reached peak preparation in 2019 ahead of a potential no-deal Brexit. Firms have built out the infrastructure they need on the continent to ensure they will be able to serve clients once Brexit happens – be that with or without a deal. They are now waiting for clarity on the level of cross border access and alignment – if indeed any. Although everyone has their parachute ready, the industry is still seeking the softest landing, with a strong future trading relationship that reduces the ripple effect on the economy.
“Over the next few months the debate about equivalence will loom large, particularly with the Government apparently pursuing “outcome-based” equivalence. For many, equivalence would provide much-needed certainty, but it is a complex framework with over 40 provisions, which is not guaranteed long term, and means different things to different firms. Given the short timetable for the negotiations, it is important that Government and industry work together to collectively agree priorities – financial stability and the best outcome for clients need to be front and centre of this debate.
“Firms are focused on fulfilling their commitments to regulators in the EU and the UK to establish their new operations. They have to manage the shift to dual regulatory reporting obligations, and they will need to align operating processes, from internal governance to the IT infrastructure used in each market, which is no small feat. For the banks particularly, migrating client accounts remains one of the key outstanding challenges. There are more strategic decisions to make, including whether to operate multiple hubs across the Eurozone and in the UK or consolidate and restructure operations, and how large a part Europe will now play in global firms’ operating models, but it’s hard to make those decisions while uncertainty still prevails.
“The fact remains that no one solid alternative is emerging to challenge London as the preeminent financial centre in Europe, but financial centres around the globe from New York to Singapore do represent a real threat to European centres. This should be front of mind for all those at the negotiating table.”
