Smaller banks, too, could move operations overseas by 2017. “Their hands are quivering over the relocate button,” he declared. Mr Browne also said the “public and political debate at the moment is taking us in the wrong direction”.
I couldn’t agree more. Talk about the effects of a ‘hard Brexit’ are certainly starting to affect the market. However, nowhere is this more apparent than in the City. What we are starting to see is one of the first major tangible effects of Brexit.
Mr Browne continued: “Banking is probably more affected by Brexit than any other sector of the economy. 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.” As if that wasn’t troubling enough, Mr Browne continued: “For banks, Brexit does not simply mean additional tariffs being imposed on trade…it is about whether banks have the legal right to provide services.”
Banks undoubtedly want to see the continuation of the EU’s passporting system, which allows UK-based financial services to operate across Europe without needing separate authorisation. However the prospects of a ‘hard Brexit’ could jeopardise this. Banks have called for transitional arrangements to be put in place. However Mr Browne warned that both in Europe and among UK eurosceptics the mood was ‘hardening’: He said: “There is a real risk of disruption to Europe’s financial markets.”
It’s not surprising then that international banks are already working on contingency plans should the UK’s exit deal with the European Union not protect rules related to financial services. “Businesses can’t wait to the last minute. It takes years to move operations. Banks might hope for the best but have to plan for the worst,” he wrote. And no wonder: a study from Oliver Wyman states that as many as 70,000 financial services jobs could be lost if the UK left the EU without a new deal for the City of London in place.
All rather worrying. While we remain in the dark as to the details of Brexit, uncertainty prevails.
Britain has been a great place in which to invest and expand. But for many investors right now those attractions are obscured by the uncertainty of Brexit. This includes, without doubt, the possible loss of access to European markets. Recent survey evidence from EY already shows Britain slipping from second to seventh place in the ranking of most desirable investment destinations for overseas acquirers, falling below Germany and France. Not good.
A government spokesman has already attempted to play down Mr Browne’s comments: “We are determined to maintain the City’s leading position as one of the key centres of global finance as we make a success out of Brexit. The Department for Exiting the European Union and HM Treasury are leading work considering options for the future relationship between the UK and the EU in the areas of financial services and have the resources required to get the best deal for the UK.”
The success of the City is paramount for Britain. While negotiating back and forth is part of the Brexit game, we should look to protect what is most important for the success of project GB. If ‘hard Brexit’ is purely a negotiating stance, then we need to think very carefully about our approach. Let’s not break the thing that we most want to protect.