New Financial

Brexit & The City: The Impact So Far


April 2021 • Topic: Brexit • by Eivind Friis Hamre & William Wright


This report highlights the damage that Brexit has already done to the City of London. More than 440 firms in banking and finance have moved or are moving part of their business, staff, assets or legal entities from the UK to the EU. While this is higher than previous estimates, it underestimates the real picture – and the potential longer-term impact.

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Brexit means Brexit

For nearly five years, Brexit has loomed over the City of London and the European financial services industry. While politicians have been locked in a circular argument and rival financial centres in Europe have been jostling to win business from the UK, many firms in banking and finance have been quietly getting on with preparing for it.

Now that the UK has left the EU, Brexit means Brexit whether the City of London likes it or not. This report provides the most comprehensive picture yet of the impact of Brexit on the banking and finance industry in the UK and the emerging post-Brexit landscape of financial centres across the EU.

It makes for sobering reading: the bad news (from the UK’s perspective) is that we have identified more than 440 financial services firms in the UK that have responded to Brexit in some way by relocating part of their business, staff, or legal entities to the EU (a lot higher than our previous estimates). We have identified more than £900bn in bank assets (roughly 10% of the entire UK banking system) that have been or are being moved.

The worse news is that this analysis is almost certainly a significant underestimate of the real picture: many firms will have slipped below our radar (particularly banks and asset managers that are already headquartered in the EU). ‘Getting Brexit done’ is only the end of the beginning of the process: given the limited equivalence arrangements in
place, over time we expect there to be a drip-feed of business and activity from the UK to the EU. As the EU takes a tougher line on the location of activity and individuals we expect these headline numbers to increase in future.

The ‘good’ news is that the extent of this relocation activity means that most firms in the UK that need continued access to clients and markets in the EU now have it. With that access in hand, this is perhaps an opportunity to draw a line in the sand, treat Brexit as a sunk cost, and move beyond the debate of the past few years of how closely the UK should remain aligned to the EU in exchange for more access to EU markets. That access is unlikely to be forthcoming, so it is perhaps better for the industry to take the damage from Brexit on the chin and focus instead on recalibrating the framework in the UK so that it is more tailored to the unique nature of the UK financial services industry. While the EU will remain a significant and addressable market on the UK’s doorstep, Brexit can be the occasion for the UK to seek to develop closer partnerships in key sectors with other markets further afield.

The report addresses the following questions:

Summary of the report:

1.A big headline number: we identified more than 440 firms in the banking and finance industry in the UK that have responded to Brexit by relocating part of their business, moving some staff, or setting up new entities in the EU. Over 420 of them are setting up new hubs for their EU business, and in all we identified more than 500 separate moves across the EU. Banks have moved or are moving more than £900bn in assets from the UK to the EU, and insurance firms and asset managers have transferred more than £100bn in assets and funds.

2. A big increase: when we published our first report in March 2019 on the impact of Brexit we identified 269 firms that had relocated something. Since then, we have identified another 170 firms in the banking and finance industry moving something due to Brexit. While this is the most comprehensive analysis yet of the impact of Brexit on the City, we think it is an underestimate: we are only at the end of the beginning of Brexit.

3. And the winner is…: Dublin has emerged as the clear winner in terms of attracting business from the UK, with 135 firms choosing the Irish capital as a post-Brexit location. This represents 25% of all the moves that we identified, ahead of Paris with 102 firms, Luxembourg with 93, Frankfurt on 62, and Amsterdam on 48. In the longer-term, we expect Frankfurt to be the ‘winner’ in terms of assets, and Paris in terms of jobs.

4. 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 nearly 70 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.

5. Sector specialisation: different financial centres have attracted different firms based on their sector of activity. For example, a third of all asset management firms that have moved something as a result of Brexit have chosen Dublin; 60% of the firms that have chosen Frankfurt as their main EU base are banks; and nearly two thirds of firms moving to Amsterdam are trading platforms, exchanges or broking firms.

6. 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. That said, we have identified around 7,400 staff moves or local hires in response to Brexit, but this is derived from only a small minority of firms, and we expect this number to increase in the next few years. The bigger issue is not jobs leaving the UK but new jobs in the EU being created in future that might otherwise have been created in the UK.

7. 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: £900bn in bank assets is roughly 10% of the UK banking system. The final tally is likely to be higher, which will reduce the UK’s tax base, supervisory influence, and ultimately have an impact on jobs.

8. Two way traffic: it is not just one way traffic, and in the next few years many EU firms are likely to open a new office in the UK. Our analysis of the EU firms using the current temporary permissions regime to access the UK market shows that over half of them already have a presence in the UK. Many of those that don’t are smaller firms who may decide it is not worth it. We think a likely outcome is that around 300 to 500 mainly smaller firms may open an office in the UK, much lower than the prevailing forecasts of around 1,000.

9. A loss of influence: the shift in business, assets and legal entities will gradually chip away at the UK’s influence in the banking and finance industry in Europe and 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 as services that were previously exported from the UK are provided locally.

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% (so far) of the headcount at individual firms. However, over time other European cities will chip away at London’s lead.

Methodology & acknowledgements

This report focuses on the number of firms in the UK that have responded to Brexit by moving part of the their operations, staff, legal entities and assets to the EU. We chose this approach because in most cases the information is more accurate, consistent and comparable than the wildly differing estimates of job moves and assets. We used a combination of regulatory registers, media reports, other research reports on the impact of Brexit, and information from development agencies and government bodies, to build as comprehensive a picture as possible of the impact of
Brexit. We apologise for any errors: please email any queries, additions or corrections to info@newfinancial.org

Thank you to Eivind Friis Hamre for conducting much of the heavy-lifting in this report; to the speakers and guests who have participated in our Brexit programme of more than 30 events over the past few years; and to our members for their support for our work in making the case for bigger and better capital markets in Europe.