Partly because of shared regulations, and partly because of London’s strength as a banking hub, the UK has become a major European financial centre.
While UK-based firms certainly benefit from having access to the European single market, European businesses, public bodies and people who live in Europe benefit from having access to the UK financial services industry too. Through them they can access the global financial system.
In 2015, the EU imported around €31 billion of financial services from the UK. This trade flow is a compelling measure of Europe’s current reliance on the financial services production and distribution capacity that exists in the UK. That capacity relies on the UK’s:
It would force an abrupt shift. The financial services production and distribution capacity from the UK would gradually relocate to other places in the EU – leaving everything fragmented.
If that happened, it could destabilise the European financial system and make it less efficient. Then, more broadly, it could have a knock-on effect to the whole European economy and the finances of the people who live there.
After all, the recent global financial crisis has shown us how closely these things affect each other.
In fact, both financial services industries are struggling to break even.
When negotiations start, every side needs to acknowledge what they all need: as little disruption as possible. Otherwise the changes could affect people and businesses being able to save money, invest sensibly, manage risk and settle trades successfully.
The final deal should, as far as possible, maintain how efficient, productive and globally accessible the status quo is – or even improve it.
The final deal will inevitably mean some things have to move around and change – like operations, technology, people, physical assets, and supply chains. There will need to be arrangements for that time period so firms, suppliers and supervisors can change things in an efficient way.
We hope our study will uncover exactly what that is, and how we can make this shift without costing the European economy.