The Brexit vote may lead to “large-scale” redundancies in the financial services sector, lawyers have warned.
Following the decision to split from the EU, existing cross-border rules on the provision of services such as banking and investment will need to be reviewed.
It is now crucial that the transition out of Europe is handled as smoothly as possibleDavid Watt, IoD Scotland
Outside of London, Scotland is the most important market for financial services, supporting some 100,000 jobs directly and a similar amount indirectly, according to trade body Scottish Financial Enterprise.
Nick Elwell-Sutton, a partner at legal heavyweight Clyde & Co, said: “Unless the financial services passporting rules are resolved in the UK’s favour, then many large financial services businesses are likely to relocate to within the EU meaning large-scale redundancies would be highly probable.”
Tobin Ashby, a partner at law giant Pinsent Masons, said: “The vote to leave the EU means some financial firms could now reconsider how they are structured for European operations, as it is uncertain what arrangements might be agreed in place of the current ‘passporting’ arrangements that many London-based firms use to avoid the need for multiple authorisations across Europe.
“It seems likely that the UK will push to negotiate an equivalence regime to replace passporting when the UK’s membership of the EU expires to allow UK-based firms to continue to access other national markets in the EU relatively easily.
“However, those negotiations are likely to take place within broader talks over the terms of the deal confirming the UK’s EU exit which are likely to take many months, and quite possibly years, to conclude.
“Some UK-centred companies with business across Europe could look to relocate to other European financial centres such as Frankfurt, Paris, or in some cases Dublin, if they view passporting rights as so central to their operations that they are not prepared to endure uncertainty whether an equivalent regime would allow them to continue to use London as a base for Europe-wide activities.”
However, other experts played down the potential impact on financial services, which are largely concentrated on the City of London.
Jeremy Leach, chief executive of international asset manager Managing Partners Group, said Brexit would have little long-term impact on the UK’s financial services industry.
“Financial services will continue to be the UK’s biggest export for the same reasons it has been for the last 100 years, which is its pragmatism, innovation and desire to trade,” he said.
“Nor will the UK necessarily be excluded from the European Union’s pass-porting regime for financial products. Most of the EU’s regulatory processes were adapted from those of the UK’s Financial Conduct Authority (FCA) anyway so negotiating a workable agreement will be more straightforward than for other EEC members that are still evolving on their regulatory framework.”
The FCA today pointed out that much financial regulation that currently applies in the UK derives from EU legislation, which will remain in place until any changes are made, “which will be a matter for government and parliament”.
The City watchdog said: “Firms must continue to abide by their obligations under UK law, including those derived from EU law and continue with implementation plans for legislation that is still to come into effect.
“The longer-term impacts of the decision to leave the EU on the overall regulatory framework for the UK will depend, in part, on the relationship that the UK seeks with the EU in the future. We will work closely with the government as it confirms the arrangements for the UK’s future relationship with the EU.”
David Watt, executive director of the Institute of Directors in Scotland, insisted that Scottish businesses were “robust” as he urged politicians to work together to negotiate a deal with European leaders.
He added: “It is now crucial that the transition out of Europe is handled as smoothly as possible, and that stability is maintained in the meantime.
“What business leaders need is a combination of calm and clarity, which will assist them in getting on with business during the weeks and months to come, alongside establishing a new basis for relationships with our international partners.”
Edinburgh-based life and pensions giant Standard Life put out a statement today, saying: “The people of the UK have now voted in favour of leaving the EU and we fully respect this decision. We understand that in the coming period the UK government will begin negotiations with the rest of the EU over the terms of the UK’s withdrawal. We expect that process to take at least two years.
“Standard Life has a strong track record of successfully adapting to changing markets and regulation, and the evolving world around us.
“Consequently, we will have the required measures in place to help ensure we can continue to support our customers and clients and our other stakeholders across our group as the negotiations develop. As a business we already operate successfully across many borders in the EU and elsewhere in the world.
“We want to provide continuity and peace of mind throughout the process of negotiation; we will follow developments closely as the new arrangements are agreed and where appropriate, we will contribute to the process. We will keep all our stakeholder groups regularly updated on progress as appropriate.”
Meanwhile, Clydesdale Bank parent group CYBG – which also owns the Yorkshire Bank brand – said the outcome of last night’s vote would have “no immediate impact” on the lender.
It said: “There is now expected to be a period of at least two years for the terms of the UK’s exit to be negotiated – during which time we, like all other businesses in the UK, will work with policy makers and regulators to understand and manage any potential consequences for our business.”