Brexit brings “slower but ongoing” relocation of UK finance jobs and assets to EU

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Financial services firms have planned to move an estimated GBP1.3 trillion in assets from the UK into the EU since the Brexit referendum, according to the latest estimates from EY’s Financial Services Brexit Tracker. 

Almost 7,600 jobs are also being relocated, with the most popular destinations including Dublin and Luxembourg.

The flow of financial services firms planning to move jobs and assets away from the UK has slowed significantly in recent months, as leaders on both sides enter a new round of discussions over post-Brexit regulatory co-operation that are expected to define the future relationship. 

This slowdown has led to only 100 jobs and GBP100 billion in assets being earmarked for relocation in the past five months, according to the consultancy.

“Financial services firms across Europe have a number of chapters still to write before they can close the book on Brexit,” says Omar Ali, EMEIA financial services managing partner for client services at EY.

“After the major hurdle of setting 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,” says Ali.

The UK’s large financial services industry has been cut off from its largest customer, the EU, since the Brexit transition period ended with a trade deal that failed to address the sector. 

The EU has so far denied equivalence for the UK’s financial services, taking away London’s free access to the bloc’s markets. This contributed to London being overtaken by Amsterdam as the largest euro share-trading centre in Europe in February.

According to EY’s industry coverage, 43 per cent of financial services firms have moved or plan to move some UK operations to Europe.

Many European firms are also considering opening up offices in the UK for the first time, in a bid to preserve access to the country’s markets. Freedom of information requests submitted by financial consultancy Bovill found that 1,500 money managers, payment firms and insurers have applied for permission to continue operating in the UK after Brexit, two thirds of which had no previous offices in Britain.

In January, think tank New Financial said that UK financial services were experiencing a “first wave” of relocations, predicting that the number of jobs moved could increase to around 35,000 jobs in the medium term.

“The bigger threat for the UK in the medium term is that the EU tries to force more business to relocate,” writes William Wright, managing director of New Financial. 

Wright says that the EU has been explicit with the granting of equivalence for clearing that it expects firms to increase their local clearing activity in the EU. Wright also notes that the bloc is also reviewing potential changes to the delegation regime in asset management, which “may eventually force more of the management of assets (rather than merely the domicile of an investment fund) to relocate”. 

“It is likely that the EU will use the next few months to clarify what can and cannot be done from London.”

The UK and EU are currently discussing a “memorandum of understanding” on financial services, which Downing Street hopes to complete by the end of March.

Ali believes that the current talks will help to lessen the uncertainty which has been “a thorn in the sector’s side for nearly five years”. 

He emphasises the need to prioritise key areas beyond passporting and equivalence, going into “far more complex matters involving data, capital, skilled talent and frictional costs, that need to be settled”.

A rising number of more than a quarter have publicly stated that Brexit is impacting or will negatively impact their business, according to EY.

“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,” says Ali. 

He notes that there is already much activity underway, with reviews into the UK Listing Regime and the UK FinTech sector looking to boost the country’s global standing, and a new regulatory agenda focusing on ESG and sustainable finance. 

“As all markets look to the future, the trade agreements to come will lay the foundations for a new era of global financial services,” says Ali.

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