For many UK firms in the financial services sector, Brexit offers an opportunity to turn their business into a thriving organisation, capable of improving its market position in unpredictable environments.
In 2014, UK exports of financial services to the European Union (EU) generated an £18.5bn (US$22.8bn) trade surplus, according to a study by industry body TheCityUK, and is therefore a flow of business that needs to be preserved. One of the main concerns that could limit this are passporting rights.
To overcome this, UK firms may need to consider setting up subsidiaries in EU locations in order to continue carrying out business with EU-based institutions. In the long run, it may also be beneficial to increase bilateral trade agreements with other emerging financial centres such as Hong Kong or Singapore.
The decision to exit the EU will likely reduce banking stability as a result of divergent responses to regulation from both the EU and UK regulators. It will also alter the competitive landscape, with increased competition from other financial centres and change the makeup of the workforce, with a slowdown in EU talent coming into the City.
The key things to consider include market access, potential unwinding, regulatory implications, location of clients and competition for talent. For example, locating the right parts of your business in the right place at the right time can reduce operating costs by as much as 60%.
It is also important to ensure you understand your degree of exposure to different geographies and regulations, including that of your counterparties and suppliers. A lot of the changes will likely relate to cross-border transactions and the restrictions these could place on your business, particularly in relation to data, trades and vendors, and service providers.
Global organisations will also have to consider existing contractual obligations linked to borders, such as using vendors and providers that are owned by EU companies, or operating near-shore businesses in EU locations like Poland. The key at this stage is to ensure you know all the details of the agreements and your contractual obligations so you are ready to act when the needs arises.
It may also be worth monitoring your exposure to exchange rate risk, as well as ensuring you have the right communication channels and distribution networks in place to share your vision and plans internally and externally.
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