March 2019 • Ecommerce reports • Topic: Brexit • by William Wright, Christian Benson & Eivind Friis Hamre
This report provides the most comprehensive analysis yet of the impact of Brexit on the City and the wider banking and finance industry. More than 250 firms in banking and finance have moved or are moving business, staff, assets or legal entities away from the UK to the EU – and these numbers are likely to increase significantly in the near future.
To purchase a copy of the report, please use the order button at the end of this page. New Financial is a social enterprise that relies on support from the industry to support its work.
If you work in government, regulation, the media or academia and would like to request a copy of the full report, please click here
With just weeks to go until a potential ‘no deal’ Brexit, the latest report from capital markets think tank New Financial underlines the scale of the impact of Brexit on the City of London and the UK financial services industry.
We have identified 275 firms in the UK that have moved or are moving some of their business, staff, assets or legal entities from the UK to the EU to prepare for Brexit, which we think makes it the most comprehensive analysis yet of the impact of Brexit on the banking and finance industry. Around 250 firms have chosen specific post-Brexit hubs for their EU business, and more than 200 firms have set up or are setting up new entities in the EU to manage their business.
These moves are the inevitable consequence of Brexit. The political uncertainty since the referendum and failure to reach a deal has forced firms to prepare for the worst and put their contingency plans into action. Much of the damage has already been done and for many firms, Brexit happened sometime last year. This shift will chip away at London’s position as the dominant financial centres in Europe; increase cost, complexeity and risk in European financial services; reduce the UK’s influence in the banking and finance industry at a European and global level; and hit tax receipts and exports in financial services.
The report found that:
* Dublin is by far the biggest beneficiary with 100 relocations, well ahead of Luxembourg (60), Paris (41), Frankfurt (40) and Amsterdam (32).
* The post-Brexit landscape is much more ‘multipolar’ than before: more than 40 firms are moving staff or business to more than one financial centre in the EU.
* The shift in underlying business is more significant than headlines about the number of staff: our conservative estimates shows that banks and investment banks are moving around £800bn in assets; asset managers have so far transferred more than £65bn in funds; and insurance companies have so far moved £35bn in assets.
* There is a wide range in how different sectors have responded: for example, nearly half of asset managers, hedge funds and private equity firms in our sample have chosen Dublin, while nearly 90% of firms moving to Frankfurt are banks or investment banks.
The good news is that the contingency planning by banks, exchanges and asset managers – combined with recent agreements between UK and EU regulators – means that the industry is pretty well-prepared for whatever happens between now and March 29th.
The bad news is that the impact of Brexit is bigger than we expected and we think the report understates the full picture. Many firms will have quietly moved parts of their staff or business below the radar, others will have held off making a formal move – and we think plenty of other firms aren’t yet ready.
And the worse news is that we expect the headline numbers to increase significantly in the next few years as local regulators across the EU require firms to increase the substance of their local operations. We also identified hundreds of firms that we think will have to move something somewehere to retain access to EU markets but which haven’t yet done so.
Here is a short 10-point summary of the report:
1) A big headline number: we identified 275 firms in the banking and finance industry that have responded to Brexit by relocating part of their business, moving some staff, or setting up new entities in the EU. Nearly 250 of them are setting up new hubs for their EU business, and over 210 have set up new entities or applied for new licences. Banks have moved or are moving around £800bn in assets from the UK to the EU, insurance firms are moving tens of billions of assets, and asset managers have transferred more than £65bn in funds.
2) A significant underestimate: we think our analysis is the most comprehensive yet of the impact of Brexit, but we know that the numbers significantly understate the real picture. Over time, we expect the headline numbers of firms, staff, and business to increase significantly as the dust settles on Brexit and local regulators require firms to increase the substance of their local operations.
3) The damage is done: for many firms in banking and finance, Brexit effectively happened some time last year. The political uncertainty since the referendum has forced firms to assume the worst-case scenario of a ‘no deal’ Brexit with no transition period, and to prepare accordingly. Many large firms have had their new entities in the EU up and running for months, and having spent tens or hundreds of millions of dollars on their contingency plans are not going to relocate business back to the UK anytime soon.
4) And the winner is…: Dublin has emerged as the clear winner in terms of attracting business from the UK, with 100 firms choosing the Irish capital as a post-Brexit location. This represents 30% of all the moves that we identified, well ahead of Luxembourg with 60 firms, Paris with 41, Frankfurt on 40, and Amsterdam on 32. We expect these numbers to increase significantly in the near future.
5) A multipolar world: no single financial centre has dominated these relocations. Many firms have deliberately split their business and chosen separate cities as hubs for different divisions, and we identified more than 40 firms that are expanding in other EU cities in addition to whichever centre they have chosen as their main post-Brexit hub. This redistribution of activity across the EU has wound the clock back by about 20 years.
6) Sector specialisation: different financial centres have attracted different firms based on their sector of activity. For example, roughly half of all asset management firms that have moved something as a result of Brexit have chosen Dublin. Nearly 90% of the firms that have chosen Frankfurt as their main EU base are banks, while two thirds of firms moving to Amsterdam are trading platforms, exchanges or broking firms.
7) Jobs on the line: we think the debate about how many staff have been moved so far and whether that is higher or lower than expected a few years ago is a red herring. Firms are keen to move as few staff as possible and so far at least regulators have been flexible. This will change in the next few years. We have identified nearly 5,000 expected staff moves or local hires in response to Brexit, but this is from only a small minority of firms and we expect this number to increase significantly in the next few years.
8) A shift in scale: the scale of business, assets and funds being transferred from the UK is far more significant. Only a small number of firms have said what they are moving and already the numbers are very large: £800bn in bank assets is nearly 10% of the UK banking system. The final tally is likely to be much higher, which will reduce the UK’s tax base, supervisory influence and ultimately have an impact on jobs.
9) A loss of influence: the shift in staff, business, assets and legal entities will gradually chip away at the UK’s influence in the banking and finance industry not just in Europe but around the world, as a greater proportion of business is authorised by and conducted in the EU. It could also significantly reduce the UK’s £26bn trade surplus in financial services with the EU.
10) The impact on the City: while the headline numbers are stark, there is no question that London will remain the dominant financial centre in Europe for the foreseeable future. Firms are keen to keep as much of their business in London as possible and even the biggest relocations represent a maximum of 10% of the headcount at individual firms. However, over time other European cities will chip away at London’s lead.
The full report:
The full report The New Financial Brexitometer includes the following:
1) A map and infographic summarising how more than 200 firms are responding to Brexit and which financial centres they have chosen as their post-Brexit hub
2) Analysis of the multipolar landscape in EU financial services post-Brexit: which firms have split the location of their business by division, and which firms are distributing their business across multuple financial centres
3) Analysis of how firms in different sectors are relocating to different financial centres in different ways
4) Analysis of the number of firms that rely on passporting or branches that will need to respond in some way to Brexit if they haven’t already
5) Analysis of the impact on jobs and staffing in the industry
6) Analysis of the shifts in underlying business from the UK to the EU
7) Analysis of the impact on Brexit on firms using branches to run their business across the EU
8) A detailed analysis of the five main financial centres in the EU that have attracted the most firms in terms of relocations: Dublin, Luxembourg, Paris, Frankfurt and Amsterdam
9) A summary of the implications of this report for the future of UK and EU financial services
10) An appendix by sector summarising how more than 200 firms have responded to Brexit.
About New Financial:
New Financial is a capital markets think tank launched in 2014. We’re having a growing impact among senior industry leaders and policymakers across Europe on making the case the case for bigger and better capital markets. We’ve hosted more than 100 private events and published more than 20 in-depth reports. New Financial is a social enterprise funded by institutional membership from across the capital markets industry.