There’s a great deal of posturing concerning Brexit at present, with those in favour of the move seemingly citing the successful rollout as vindication for the vote while ignoring the challenges being faced by exporters across an array of marketplaces.
Even the vaccine rollout isn’t necessarily as successful as it may seem, but there’s certainly an argument that Brexit is having a deceptively negative impact on our economy as a whole. Worse may yet be to come in the financial services sector, which dominates the UK economy and is central to all future prosperity.
But is London still the world’s global financial hub, and what does the future hold for the capital post-Brexit?
Where Does London Stand as a Financial Hub?
While London gradually moved to become the epicentre of financial activity of the single bloc during its EU membership, the uncertainty created by the Brexit vote in 2016 undermined its global status.
This was borne out last January, when the capital city lost further ground to New York as the second most influential financial centre in the world. It also saw various Asian financial centres draw closer to London, creating a scenario where the capital could fall further in the months ahead.
Overall, just a third of executives say that London is now the top financial hub, and this opinion looks likely to become increasingly popular as 2021 continues.
The reason for this is simple; as while the new UK-EU trade deal came into full effect on January 1st (with Northern Ireland providing a temporary exception to this rule), this only created a provision for goods rather than services.
This was at the UK’s request, of course, as it sought to spur negotiators into striking a more amicable and favourable deal on services in a few months time. Not only is this outcome far from guaranteed, but the approach has also created a window in which the UK’s financial sector maintains only limited access to the EU market.
This translates into a temporary deficit of £30 billion per annum, creating sizable losses and further disruption that continue at least until a secondary agreement on services is reached.
What Could Happen in 2021?
Once these negotiations do resume, the UK will move to secure regulatory equivalence to its own financial services sector, in order to maintain the type of relationship that existed prior to Brexit.
This may not be a given, especially as Brussels has so far only awarded temporary equivalence in two areas (namely derivatives for clearing houses and to settle Irish securities transactions).
The onus will therefore be placed on the UK to create a robust regulatory regime for its financial marketplace, particularly in relation to tax and issues such as price manipulation. Worryingly, negotiators have set a deadline of March to achieve this and strike a formative deal, but this appears unlikely given the UK’s focus on the coronavirus and subsequent vaccine program.
Of course, regulators and businesses can rely on expert resources to help formulate their plan and negotiating strategy, in order to benefit from ongoing support and avoid any repercussions that occur as a result of Brexit.
However, it appears as though achieving a viable agreement and one that recognises regulatory equivalence will be far easier said than done, particularly if the previous trade deal and withdrawal agreement offers any kind of template going forward.