Will banks leave the UK because of Brexit?

The chief executive of the British Bankers’ Association has claimed that Britain’s biggest banks are making plans to pull out of the UK early next year, as a result of Brexit.

BBA chief Anthony Browne told the Observer that the UK banking sector is ‘at risk’ if negotiations to leave the EU result in the removal of ‘passporting’ rights.

Browne claims, ‘Banking is probably more affected by Brexit than any other sector of the economy, both in the degree of impact and the scale of the implications. It is the UK’s biggest export industry by far and is more internationally mobile than most. But it also gets its rules and legal rights to serve its customers cross-border from the EU. For banks, Brexit does not simply mean additional tariffs being imposed on trade – as is likely to be the case with other sectors. It is about whether banks have the legal right to provide services.’

The reason for the speculation is the direction of the current negotiations, which many fear will force Britain into a position of ‘hard Brexit’ – this would mean leaving both the single market, and the customs union, which would have potentially negative implications for both freedom of movement and trade.

Politicians, Browne says, are putting not only the UK economy but also the European economy at risk, by seriously disrupting the financial services market – and encouraging international banks to plot how they would leave the UK.

‘Their hands are quivering over the relocate button,’ Browne asserts. ‘Many smaller banks plan to start relocations before Christmas; bigger banks are expected to start in the first quarter of next year.’

Browne predicts that the day after we leave the EU could represent a cliff edge, throwing the 20bn a year cross-channel trade in financial services into legal doubt or – worse – making it completely illegal.

Meanwhile, the industry body TheCityUk has claimed that up to 70,000 financial jobs could be lost if Britain leaves the EU without a new, credible relationship in place for the City of London.

Chris Ward, Research Manager at Mapa, comments: ‘The discussion focusses primarily on commercial and corporate banking. We think retail banking will be largely unaffected, and the same banks will continue to provide banking services to the UK population for many years to come. However, the amount of money available to these banks to invest in retail banking services could be negatively impacted, so we may see a slowdown in innovation, growth, and service development. This could give UK challenger banks a way in through disintermediation, whereby they pick off the services offered by traditional retail banks and encourage customers to use them for the provision of these particular services rather than the provider of their current account.’

‘However, it could also mean a reduction in competition. Much of the FinTech innovation that we have seen in the past couple of years has launched in the UK due to the level of investment available in London and the fact that the regulation is EU-wide. The uniform application of regulation means that it would be relatively easy for a start-up that launches on UK soil to expand its reach. However, several other nations have been fighting hard to become the new FinTech hub: Berlin and Singapore are notable examples.’

‘Without the enticement of easy access to the European market, start-ups may decide to set up shop somewhere else. It is these challengers that are pushing the innovation accelerator, which is producing better outcomes for consumers as a result of increased competition. Without this development in the financial services market, particularly in terms of added value, digital services could stagnate. As much of the development in the digital sphere focuses on providing customers with tools that help them better manage their finances, this could have significantly detrimental effects for the financial stability of UK consumers compared to those elsewhere in Europe.’

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