What effect will Brexit have on British banks?
The result of the EU Referendum was a shock for many people across the UK and the global community. Britain’s historic decision to leave the EU means the country must now start the process of extricating itself from the union by triggering Article 50 of the Lisbon Treaty.
Once triggered, the UK will have two years to negotiate its exit from the EU, after which the treaties that govern the nation’s membership will stop applying. But what repercussions will Brexit have on Britain’s banking industry? Let’s explore some of the ramifications of the referendum outcome.
Political and market upheaval
Unsurprisingly, there was a certain amount of disruption in financial markets and the political realm following the result. David Cameron resigned as prime minister, the pound plummeted in value and British shares took a turn for the worse.
Three weeks later, however, and the Conservative Party has already elected a new leader, Theresa May, who launched a Cabinet reshuffle, including bringing in David Davis as Brexit minister.
Meanwhile, Mr Davis confirmed the government should trigger Article 50 by the end of this year or the beginning of 2017. Moreover, the Bank of England chose not to decrease interest rates further in its latest Monetary Policy Committee meeting.
While it’s still early days, the speed with which the government recovered from Cameron’s resignation, the establishment of a Brexit portfolio and a confirmed timeframe for Article 50 are all likely to give markets confidence.
What about banks?
Several banks warned that Brexit could cause them to consider relocating their UK headquarters elsewhere, including HSBC and Deutsche Bank. In February, HSBC announced it would be staying, pre-empting the referendum, but how are other financial institutions dealing with the referendum result?
“A number of banks took significant steps to prepare [a] contingency plan for the potential implications before the Brexit vote,” explained Vishal Vedi, banking partner at Deloitte.
“This included looking at the immediate aftermath of a Leave vote, as well as the longer-term implications.”
However, Mr Vedi said banks will need to move fast to capitalise on these early preparations. Organisations shouldn’t wait until Article 50 is triggered, otherwise they risk being too late to make the necessary changes to their businesses.
Shares in challenger banks were among the hardest hit in the days after the Brexit announcement. Reuters reported that these businesses saw an average of 37 per cent wiped off their value, while larger competitors experienced losses averaging 21 per cent.
However, this doesn’t seem to have put a dampener on the expansion plans of challenger banks. According to Finextra, PwC confirmed that nine of the ten institutions that had planned to open new financial services businesses before the referendum are still choosing to proceed despite the result.
“What is striking is the variety of new businesses that are applying for UK licenses is not just limited to ‘mainstream’ retail challenger banks, mortgage lenders and asset managers,” stated Stephen Morse, financial services partner at PwC.
“There are a range of new technology-enabled banks, fintech businesses, commercial banks and even niche investment banks who have identified gaps in the market in part caused by big global banks having pulled out of some businesses over the past few years.”
The UK leaving the EU has posed a number of hurdles for British banks, but there could also be potential openings for risk managers and other corporate governance professionals as businesses look to shore up their defences.
For instance, an Independent article recently claimed EU-savvy lawyers and consultants will be highly sought after in the coming months. KPMG, Deloitte, EY and PwC have already established Brexit teams to manage increased demand for their services.
Organisations may opt to establish similar roles in-house or hire contractors to steady the ship and ensure business as usual over the coming months. Nevertheless, uncertainty will probably remain in the jobs market until the true impact of the referendum becomes known.
If you wish to discuss how Brexit will likely affect your hiring needs over the short, medium and long term, please get in touch with an experienced consultant at Barclay Simpson today.
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