Some €6 trillion of Europe’s financial assets are currently managed in London. The capital also has the lion’s share of Europe’s €5.2 trillion investment banking industry. And yet, as is becomingly increasingly apparent, Brexit is going to have huge impacts on the UK’s role in banking and financial services.
Whilst Britain is currently home to more banks than anywhere else in the world, the prospect of a mass exodus of financial services is alarming. According to figures published by Relocate Global, the industry generates a whopping 12% of the UK’s total economy.
What will the consequences be?
“The most obvious impact on accountants will be how their clients are affected,” says Abz Tahar, Director at Swansea-based Assurance Accountancy. “Depending on their industry, clients’ business could be affected by customs checks, a possible shortage of available skilled workers and amendments to laws which may affect their client contracts.”
But there is a clear commercial advantage on the horizon as well. “The uncertainty regarding new legislature will most likely result in clients looking more and more to their accountants for help and advice.”
Moving out of London
Already, Goldman Sachs and Standard Chartered have suggested they are likely to relocate to Frankfurt.
According to a recent commentary in This is Money, Barclays, Standard Life and Prudential also plan “to move vast insurance and banking assets and liabilities out of London to subsidiaries in a number of European capitals.”
Insurers and banks are about to start moving “£253 billion of assets out of the UK,” it’s believed, with documents suggesting that “at least 15 major financial firms have already set court dates to approve transfers – irrespective of whether a deal is struck.”
Is there a particular reason why finance companies seem so keen to leave, when London has long been the home of banking? “The main motivator is the issue of passporting,” says Tahar – the mechanism whereby companies can do business with other EEA states based on their home member authorisation.
Post-Brexit, it’s likely that the UK will be surrendering this right. “If those rights are withdrawn, it significantly limits investment opportunities,” explains Tahar. “As Brexit’s negotiations grow ever more convoluted, finance professionals are feeling the pressure.”
This is important for accountants “because clearly, many of the most successful professional services and accountancy firms are based in the UK, but do business globally,” says Ardi Kolah, Executive Fellow, GDPR Programme, Henley Business School.
“It’s important to ensure they can continue to provide those services seamlessly.” Currently, having a client in Spain or Germany “doesn’t pose any problems – but it might present them when they are registered in a different jurisdiction.”
“As is the case for most divorces,” Tahar says, “the untangling promises a further slew of accusations and recriminations and, as always, it’s the children that suffer – in this case, the UK’s finance companies.”
Practical advice if Britain leaves the EU
Although UK-based accountants should not be unduly worried in the short term, “the benefits of being in the EU were clear,” says Kolah. “The advantages of the one-stop-shop mechanism will no longer be available to us. So there’s a bit of work to be done thinking about how that will be perceived from your client’s point of view.”
Practical advice? “See the EU as a marketplace now, not a home territory,” Kolah recommends. “Start making friends with other people who have partners in the EU.
It was easy when we inside the tent – we were partners. Now we won’t be, and there will inevitably be consequences to that because the EU cannot be seen to reward the UK for leaving.”
If you need to travel back and forth inside Europe, “it will be helpful to have an EU passport; there’s now talk of having to buy a visa. We just don’t know yet – but in the future, you won’t be able to jump on a plane and start working in an EU country, as you currently can do.”
A time to offer reassurance
In the event of no deal, the situation is likely to look even more dramatic. “There’s likely to be a severe period of upheaval for finance professionals,” Tahar says.
“A no-deal scenario is likely to include customs checks for businesses buying and selling within EU countries; audit and reporting implications; application of Government contingency advice; and disruption and increased prices on flights.”
However, this does put finance professionals in what Tahar calls “a singularly strong position, as “uncertainty in revenue and cash-flow matters will send clients new and old flooding to them for advice!”
Ardi Kolah paints a more sobering picture. “You can’t be a member of a club and then still get the benefits after leaving. It’s always cheaper to be a member than pay as you go.”
UK businesses are “currently in a holding pattern until the details of Britain’s withdrawal are finalised,” Abz Tahar concludes. “But, now is the time for finance professionals to reassure clients that they will be on hand to help – whichever way it goes.”
Mark Blayney Stuart is Business Journalist of the Year, Wales Media Awards 2017 and Former Head of Research at the Chartered Institute of Marketing.