Brexit is now synonymous with shock, debates, uncertainty and more uncertainty. People all around the globe are probably still struggling to deal with reality and trying to come to terms with the news of Britain’s choice to exit the European Union.
Interestingly, key Brexit campaigner Nigel Farage described the situation metaphorically – “The Eurosceptic genie is out of the bottle and it will now not be put back”- as if alluding to a dream.
Or is it a nightmare?
The attempts to answer this are nothing but speculative. We can, however, be very certain that Brexit is not just Britain exiting; it causes a whole myriad of complexity, especially to the country’s banking industry.
The UK banking industry is often known as Europe’s finance hub. It spearheads most of the financial services areas and has 17% of the international market share for cross-border bank lending, with France and Germany garnering 9% each. For hedge funds assets, the UK hits 18% while France is at 1%.
The EU itself is responsible for the largest market in the world, comprising an estimated total of 500 million people and a GDP of €13 trillion.
Brexit would thus mean a reduction in both access and power. To make matters worse, legal matters will pose more challenges for its operations, such as bank relocation for both UK banks and third country banks.
UK based banks. A loss of passporting rights around the EU means a change in jurisdiction for banks. Due to this legal restriction, there will be a loss of convenience in performing banking deals within the EU.
Banks may thus consider relocating their headquarters, especially if they rely highly on selling their services within the EU.
Third country banks. Such banks often rely on the UK as the primary point of access for the rest of the EU. Without this networking right, there may be a possibility of relocation or even a shutdown.
Credibility is one of the most important assets banks rely on. Standard & Poor and Fitch are two major credit rating companies that downgraded UK’s rating to AAA and AA respectively.
Even prior to the Brexit shock, banks were experiencing a drastic drop in share prices. According to Wall Street Journal, Barclays, Royal Bank of Scotland Group and Lloyds Banking Group were three major banks whose share prices drop by 17.4%, 15.1% and 10.3% respectively.
These will definitely place banks in a very poor money lending and borrowing position. In other words, cash liquidity and investments will definitely face a slowdown.
Human Resource Management
The UK has always used a points-based system that poses challenges for employee recruitment of non-EU nationals. Cross-border employee recruitment will thus be affected assuming that the UK applies this system on EU nationals.
A shrink in recruitment options means a reduction in talent pool and knowledge diversity.
Brexit has brought about the exits of many privileges and an entrance ticket to uncertainties. This is especially worrying in this age of globalisation since the UK’s financial services have always tapped on EU’s resources for cross-borders collaboration.