Based on Remarks prepared for a discussion hosted by Devonshire house on the future of Financial Services after leaving the EU held on April 21st.
The starting point for any discussion on financial services and the impact of leaving the EU starts with the observation that, however well the industry responds, it will have lost some significant business. The question is to what extent it will be able to manoeuvre to make up any shortfall, and if there are new opportunities which might not have been available had the UK not departed the EU. At this point in time, the costs are beginning to be visible, but no incremental benefits have become apparent. This said, many financial services businesses are not wedded to the UK. They are global in nature and will simply operate where costs and regulation make this most workable and economic.
That leaving the EU has put parts of UK financial services at a disadvantage is clear. Nevertheless, there are no grounds for despondency but neither for complacency. It has been said that the industry was left out of the negotiations that took place to set the terms of leaving for a host of reasons - notwithstanding its financial importance, it remains a deeply disliked and misunderstood industry. This is an enduring legacy of the financial crisis of 2008 coupled with the technical and elitist nature of an industry that is not always good at explaining what it does. A string of headline grabbing, costly blow-ups continue to tarnish the overall image.
It does seem extraordinary that no attempts seem to have been made to secure the much touted ‘equivalence’, which might only ever have been a stick-plaster solution, but ministerial bandwidth was full of fish not finance resulting in a hard Brexit for the industry.
With some justification politicians, most of whom have had little to do with financial services, simply assume that the industry will find its own way, and there is much talk of freeing the ‘animal spirits’. While there is tremendous creativity and imagination in the sector, the whole industry has become very heavily regulated, another enduring legacy of the financial crisis, and having left the EU does not free it from this costly overlay – indeed, the UK has a history of devising and then gold-plating these rules.
All of this said, advances in technology, developments in green finance, the need for expertise and talent, advisory services and other areas of growth will ensure that the particular advantages that the City, and financial services more generally in the UK, have to offer will ensure that the industry will remain relevant and competitive.
However, this is certainly a good time to reflect on and debate where we go now with the financial services industry. This will matter as the nation looks to dig itself out of the recession and high debt levels arising from the twin impacts of Covid and Brexit.
Whatever the challenges, the City and the financial services industry, two thirds of which are outside of London, will continue to play a major role on the global stage. But what is clear is that we must work harder and smarter to keep ahead and we will need a greater level of support and understanding from Westminster to achieve this. There is no room for complacency.
Click here to read the full speech.