Cutting the apron strings: How Brexit will force British banks to think on their feet
I do not believe there is some fantasy world out there that if Britain leaves the EU we can somehow be economically better off.”
The words of none other than former chancellor George Osborne, prior to Brexit. But despite the initial aftershock, the Bank of England’s latest GDP forecast clearly shows that Britain’s economy hasn’t slowed as much as the political elite first feared.
Speaking from the perspective of an investment bank that has only ever known a world away from Brussels, UK financial institutions have no choice but to look positively to the future. While there are clearly costs that will be incurred, including paying for passporting rights and access to the Single Market, the economic reality is a far cry from the political rhetoric emanating from Westminster and Brussels in recent weeks.
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To start with, look at the burden that has weighed so heavily on the shoulders of financiers since 2008: regulation. Outside the Single Market, banks will have more direct influence on domestic market structure, if only because the brokerage community can collaborate more closely with a non-EU-constrained regulator. From executing trades to selling complex financial products, the demands of the market can be met more successfully if a local regulator, such as the FCA, has a more single-minded approach. On top of this, financial experts will have far more say on how trading is carried out.
Another plus point of having an economic arrangement free from political ties is being able to react faster to global market events and new rules. Take Basel III, a regulation that forces banks to hold capital in reserve to cope with periods of high market stress. Swiss banks have been far faster to adopt these rules than European counterparts. When it comes to market events, if there is a major announcement from say the US Fed, a Eurozone member cannot respond quickly if it is waiting for the EU, which has to gather ideas and views from the different member states. And one word springs to mind when having to respect the demands of 27 other countries: complexity.
But despite these clear advantages around flexibility to react to change and have a greater say on law making, being free to think independently is the central benefit. Understandably, many are concerned that the EU will be cutting the UK out of the big decisions. However, this view fails to acknowledge how, by being part of an independent nation, banks will have no choice but to think on their feet.
After all, it is not as if they will have the super structures of the EU as a safety net. Therefore, a refocus on quality and efficiency of client service should emerge across the City. From being able to provide local and individualised services that the market currently craves, to enabling access to all global markets trading new types of financial products, investment banks cannot underestimate the value of focusing on a more rounded service.
And for those who may feel that realigning their business is a daunting prospect, look no further than the upcoming thirtieth anniversary of the Big Bang. It was a prime example of how the City showed the agility and foresight to adjust to new market conditions. With this in mind, Brexit may not quite be the economic fantasy Osborne and others referred to pre the referendum, but more a new reality that refocuses investment banking on what the market really values – a higher quality of service.