UK financial services firms continue to incrementally move assets and relocate jobs to the EU, but changes since the Brexit deal are small
UK Financial Services Firms continue moving jobs and assets to the EU, while calling on the Government to ensure the UK maintains a cooperative trading relationship with the bloc. According to the latest data from the EY Financial Services Brexit Tracker, 43% (95 out of 222) of Financial Services Firms have publicly stated they have moved or plan to move some UK operations and/or staff from the UK to Europe, taking the total number of job relocations since the EU Referendum to almost 7,600, up from 7,500 in October 2020.
Migration of UK assets to Europe reaches almost £1.3trn
Twenty-four of the largest Financial Services Firms (ten banks, nine insurance providers, and five wealth and asset managers) have so far transferred or announced an intention to transfer assets out of the UK to Europe due to Brexit. Not all Firms have publicly declared the value of the assets that could be transferred but, of those that have, EY’s Financial Services Brexit Tracker estimates the figure to be almost £1.3 trillion, up from £1.2 trillion in October 2020.
Omar Ali, EMEIA Financial Services Managing Partner for Client Services at EY, comments: “Financial Services Firms across Europe have a number of chapters still to write before they can close the book on Brexit. After the major hurdle of standing up new EU hubs, the days of significant swathes of asset and job relocation announcements appear to have passed and will likely be replaced by the slower yet ongoing movement of people and assets to Europe for compliance purposes.
“UK and EU Firms are now awaiting the detail of the upcoming Memorandum of Understanding on Financial Services and will shortly face into a new round of Brexit discussions on the framework that will ultimately define the future relationship. The challenges remain significant, and, as recent headlines evidence, the push and pull of markets across Europe for business historically led from the UK continues. Such ongoing uncertainty poses the risk of fragmented markets, which is inefficient and costly for all Financial Services users and potentially damaging to the global competitiveness of both the UK and EU. Fragmentation of European financial services will serve to only benefit the US and Asia. But these challenges can be overcome if the right areas are prioritised – although passporting and equivalence debates command the headlines, there are arguably far more complex matters involving data, capital, skilled talent and frictional costs, that need to be settled.”
Firms stress need for cooperative UK-EU framework as Brexit continues to hit profits
The negative financial impact of leaving the EU is still being felt by some in the UK Financial Services sector. Over a quarter (26%, equating to 57 out of 222) of Firms have publicly stated that Brexit is impacting or will negatively impact their business, up from 49 Firms in January 2020.
Since late December 2020 and in the two months since the Brexit deal, ten Financial Services Firms – made up from some of the largest retail and investment banks and wealth and asset managers operating in the UK – have publicly urged the UK Government and regulators to ensure that the UK sector remains competitive and open for business. Public statements include calling for an operating environment that is accessible to both local and international trade and services businesses, and assurance that London does not lose its grip on its role as a key European trading hub.
Since late December 2020, four global wealth and asset managers with combined assets under management of over US$10 trillion have called for greater clarification over the UK’s future regulatory regime, arguing for greater alignment rather than divergence from Europe, focused on establishing a flexible, co-operative, relationship with the EU.
Dublin, Luxembourg and Frankfurt remain top choices for relocation
Since the 2016 Referendum, 40% (89 out of 222) of Firms monitored by the EY Financial Services Brexit Tracker have confirmed at least one location in Europe where they are or are considering moving or adding staff and/or operations to. Twelve per cent (27 out of 222) have confirmed multiple locations in Europe where they are moving or considering moving or adding staff and/or operations to.
Dublin remains the most popular destination for staff relocations and new European hubs or offices, with 36 Financial Services Firms saying they are considering or have confirmed relocating UK operations and/or staff to the city. Luxembourg is the second most popular destination and has attracted 29 companies in total; 14 are wealth and asset managers and six are universal banks, investment banks or brokerages.
Frankfurt has attracted 23 companies in total, 19 of which are universal banks, investment banks or brokerages. Twenty Firms say they are considering or have confirmed relocating operations and/or staff to Paris, 14 of which are universal banks, investment banks or brokerages. Other named locations include Madrid (8), Amsterdam (8), Brussels (6) and Milan (5).
Omar Ali concludes: “Specific policy work to align the UK and its closest trading partner remains crucial and will be mutually beneficial – uncertainty has been a thorn in the sector’s side for nearly five years. Firms in both the UK and the EU continue to deal with the challenges well, and the fact that no major service disruption occurred on 1 January 2021 demonstrated just how well prepared the Financial Services sector was.
“Looking ahead, the UK, as a leading global financial centre, will be as focussed on building relationships and competing with markets beyond European borders, as it will be on building its new relationship with the EU. There is already much activity underway as the UK redefines its future – the reviews into the UK Listing Regime and UK FinTech sector will be particularly key to its global positioning, and many eyes will be monitoring how the UK progresses new regulation on the emerging ESG and sustainable finance agendas. As all markets look to the future, the trade agreements to come will lay the foundations for a new era of global Financial Services.”