{"id":37487,"date":"2024-08-11T16:26:53","date_gmt":"2024-08-11T16:26:53","guid":{"rendered":"https:\/\/essays.homeworkacetutors.com\/2024\/08\/effect-of-brexit-on-the-financial-sector\/"},"modified":"2024-08-11T16:26:53","modified_gmt":"2024-08-11T16:26:53","slug":"effect-of-brexit-on-the-financial-sector","status":"publish","type":"post","link":"https:\/\/www.colapapers.com\/us\/effect-of-brexit-on-the-financial-sector\/","title":{"rendered":"Effect of Brexit on the Financial Sector"},"content":{"rendered":"
\n

Brexit: A bleak future for the financial
\nsector?<\/strong><\/p>\n

Abstract<\/strong><\/p>\n

The word \u201cBrexit\u201d evolves from Britain and exit which is an unforeseeable situation that the UK is now facing. Brexit could cause damages<\/a> to the UK economy in the long term, especially those in financial sector. The solutions to lessen the impacts of Brexit have been illustrated in this essay. This essay also aims to discuss the impacts of Brexit on asset management services and the banking industry<\/a>. It will then evaluate these impacts on different aspects: international students, UK housing market, stock market and Britons who live in EU countries.<\/em><\/p>\n

Introduction<\/strong><\/h2>\n

On 23 June 2016, the United Kingdom held a
\nreferendum whether to leave the European Union (EU) or not. Most Britons
\nbelieved beforehand that the UK would not leave the EU. Surprisingly, the
\nresult was 52% of the voters decided to leave the EU (CFA INSTITUTE, 2017). As
\na result, David Cameron who, at that time, was the prime minister of the UK had
\nto resign. Subsequently, the position in charge was taken by Theresa May.
\nFollowing this step, on 29 March 2017, the UK government has formally announced
\nits invoking of Article 50 which is the initial step to formally exit from the
\nEU. Thus, the word \u201cBrexit\u201d evolves from Britain and Exit. The process must be
\nfinalized within two years. This means, in March 2019, the negotiation has to
\nbe done. However, from a very recent Guardian article, this process could be
\npostponed because there are new variety of
\nregulations which need to be implemented and many institutions that require new
\nstaffs to operate (Miller, 2017).<\/p>\n

It appears highly likely that once Brexit
\noccurs, Britain will lose its right to tariff-free access to the EU market. In
\nother words, UK-based firms, especially those in the financial sector, may be
\nunable to conduct their operations throughout the EU. As a result, overseas
\nfinancial institutions whose European headquarters are located in the UK must
\nreconsider their decision on whether to continue operating their management
\nfrom the UK or not. This could cause long-term negative consequences to the UK
\neconomy. Therefore, this essay will discuss the impacts of Brexit on financial
\nservices, particularly asset management and the banking, moving on this essay
\nwill also evaluate these impacts on Britain\u2019s post-Brexit future.<\/p>\n

Financial Services<\/strong><\/h2>\n

Financial services are the economic activities
\nthat are involved in the flow of
\nmoney in the financial system. The services include asset management
\nwhich is the service that aims to allocate money to maximize the profit.
\nAdditionally, the banking is an institution which mainly provides such services
\nas accepting deposits and issuing loans to clients. Those activities have
\nbecome one of the crucial parts of the UK economy and it provides an
\nopportunity for the UK to influence world banking industry. According to the
\nHouse of Lords EU Committee, 7-12 percent of GDP of the UK, 7-12 percent of
\nemployment ratio and 11 percent of tax receipts are ruled by the financial
\nservices. Furthermore, the largest trade surplus of the UK in 2014 was the
\nfinancial services which accounted for \u00a358 billion of which \u00a319 billion is the
\ntrade with the EU country Austen, Hunt, Kelly, Naylor, & Sants, 2016).
\nHowever, this positive circumstance could possibly be worsened by the
\nreferendum which was held on 23 of July 2016.<\/p>\n

This is also a major concern for the financial
\nservices. As a consequence of Brexit, it is forecasted that the UK could lose
\n31000-35000 job positions in financial services. In addition, the worst
\nscenario, this number could increase to 40000 (Arnold, 2016). This number
\naccounted for 3-4 percent of job position involving with the financial services
\nin the UK (Austen et al., 2016).<\/p>\n

Asset management services<\/strong><\/h2>\n

Asset management is referred to an activity of
\ngenerating returns for investors from the capital which is subsidized by investors.
\nAccording to the Investment Association and the Financial Conduct Authority,
\nthe UK asset under management (AUM) is \u00a36.9 trillion, approximately, of which
\n\u00a32.2 trillion is the overseas client. In addition, 55 percent of the overseas
\nclient, or \u00a31.2 trillion, is the European clients (CFA INSTITUTE, 2017). This
\ncan be said that the asset management industry has played a crucial part in the
\nUK economy. Moreover, losing the right to access the EU market could possibly
\ncause long-term problems to the UK economy. <\/p>\n

After Brexit, the UK-based investment firm
\ncould witness severe problems supporting the EU clients, as claimed by
\nChristian Nolterieke, managing director at MyPrivateBanking Research
\n(Greenhalgh, Mooney, & Williams, 2017). In order to serve clients and
\nrecruit talented people in the EU, they must acquire the tariff-free license to
\naccess the EU market which the UK\u2019s license will no longer be valid if they
\npursue Brexit. Moreover, the advertisement and marketing are also prohibited
\nfrom the non-european economic area (EEA), as stated by Nolterieke. There might
\nbe some solutions to cope with this issue. One of them is to establish an
\noffice in Europe. However, to do so, the business must be in a large scale.
\nThis is because establishing office in Europe requires high amount of capital,
\nwell-corporate structure, office, and people, as stated by Julie Patterson who
\nis the consultant of asset management global Brexit at KPMG (Greenhalgh,
\nMooney, & Williams, 2017). Furthermore, to establish an office in Europe,
\nthe regulation of the Markets in Financial Instruments Directive, known as
\nMiFID, requires 20 or more employers onshore. As a result, finding a partner of
\nbusiness in Europe could possibly be the most moderate
\nmethod to lessen the effect of Brexit, as determined by Nathan
\nBostock who is now the executive directors of Santander UK (Gerrard, 2017).
\nThis is because the UK-based firm is still benefit from being a partner with
\nEurope-based firm, even though the benefit is not fully equivalent to the past.
\nIt is a method called profit-sharing in which it could stimulate the UK and
\nEurope economy in the long-term.<\/p>\n

Surprisingly, in 2017, the research conducted
\nby the CFA instituted, the institution which is the community of fund managers,
\nhave shown that two-thirds of the fund managers have not changed their
\ninvestment horizon after Brexit. Theoretically, this might be because the fund
\nmanagers tend to invest in the equity market which the price of the equity
\ncould increase when the pound is depreciated.<\/p>\n

The Banks<\/strong><\/h2>\n

In this essay, the types of bank will be
\ncategorized into three types: commercial bank, retail bank and investment bank.
\nFirstly, commercial bank is a financial institution which mainly provides such
\nservices as deposit and withdraw of money and offers loans to
\nbig business. Secondly, unlike commercial bank, retail bank or consumer bank
\nprovides the same services to customers in a non-business sector. Lastly,
\ninvestment bank is not the bank who provides such services as accepting money
\nor issuing loans services. On the other hand, it is the bank who provides
\nadvises on stock market launch, mergers and acquisition or even taking over
\nother company.<\/p>\n

The impact of Brexit on these types of banks
\ncould cause the similar problems as in asset management services. This is
\nmainly because the EU requires the approval of Markets in Financial Instruments
\nDirectives (MiFiD) to allow banks to operate in the EU. In order to maintain
\nMiFiD status, the UK must be part of the European Economic Area (EEA). This
\ncircumstance is not likely to occur if the UK favours a \u2018hard Brexit\u2019. This is
\nbecause \u2018hard Brexit\u2019 means the UK has to relinquish its MiFid license as it
\nwill no longer be valid. As a result, this occurrence causes the world\u2019s
\nleading financial institutions to leave the UK.<\/p>\n

Paris has been one of the biggest rivals for
\nthe European financial centre since the UK referendum. However, due to the high
\ncorporate tax rate, 33.3 percent, this effects Paris\u2019s attractiveness to be
\nlessen (Stothard, 2017). In this sense, the opportunity is now belonging to
\nDublin because 12.5 percent tax rate in Ireland could attract the firms from
\nall over the world. Moreover, those firms who wish to move to Ireland do not
\nneed to establish new banking license. This is exemplified by the announcement
\nfrom the Bank of America, the second largest bank in America by total asset,
\nthat the bank has chosen Dublin as the headquarter office for its EU operation
\nafter Brexit (Noonan, 2017). Brian Moynihan, chief executive officer of the
\nBank of America, also told the Financial Times that \u201cWe\u2019ve been working with
\nthe Central Bank of Ireland to get it all set up and it\u2019s been a very smooth
\nprocess so far. The government is trying to help us get through the regulatory
\nprocess.\u201d (Noonan, 2017). As a consequence of the support from the government
\nand an existing banking license of Dublin, it could support the Bank of America
\nto accomplish its process ahead of Brexit easily.<\/p>\n

Frankfurt has also competed for the position of
\npost-Brexit financial centre. From the announcement of Deutsche Bank, the
\nlargest bank in German, they will transfer most of their assets and operation
\nto Frankfurt in this autumn (Arnold,
\nMartin, & Noonan, 2017). This could be one of the largest transfer
\nof single EU bank, as stated by the chief executive officer, John Cryan.
\nAnother decision made by Citigroup\u2019s Europe, Middle East and Afica (EMEA) chief
\nexecutive office, Jim Cowles, that the bank decided to move theirs main trading
\noperation to Frankfurt (Arnold
\net al., 2017). This is because Frankfurt is well known for its
\ninfrastructure and skilled workers which the bank has already had on ground, as
\nclaimed by Mr.Cowles. These actions from two of the largest bank in the world
\ncould threaten Britain\u2019s economic in the long term, indeed. Undoubtedly,
\ninternational banks such as Nomura Holdings, the fifth largest bank by asset
\nand Sumitomo Mitsui Banking Corporation which is the third largest bank in
\nJapan by asset have already published their plan on moving their main operation
\nto Frankfurt after Brexit (Arnold, 2017).<\/p>\n

Turning to another side of the issue, there are
\nseveral private banks who are now enlarging their services in the UK. According
\nto the Financial Times, the senior executives at the following banks; Credit
\nSuisse, UBS, Soci\u00e9t\u00e9 G\u00e9n\u00e9rale and Pictet announced that the companies will
\nexpand their operation and investment in the UK (Arnold, 2017). This
\nis because the UK is still attractive in terms of market potential. In other
\nwords, the wealthy clients still find an opportunity in the UK. This idea was
\nalso supported by Jakob Stott who is the EU head of UBS\u2019s wealth management
\nbusinesses (Franklin & Gruber, 2016).<\/p>\n

Britain\u2019s post-Brexit future <\/strong><\/h2>\n

International Student<\/strong><\/h3>\n

The UK has been known for its quality of
\neducation but this might be extravagant for international student to study in
\nthe UK. However, due to the UK referendum, the pound sterling witnessed a huge
\ndrop after the vote had been officially announced (Broadbent, 2017). This drop
\nbenefits international students directly because the pound depreciated in its
\nvalue, comparing to other currency. In other words, international students in
\nthe UK spend less budget on their course and accommodation. To illustrate, one
\nof Thai students claimed that the cost of their study which includes tuition
\nfee, accommodation and living expense is now 15 percent lower, approximately. This means there would be a soar in a number of
\ninternational applicants who desire to pursue the quality of the UK education.<\/p>\n

UK Property<\/strong><\/h3>\n

Property in the UK has always been a target for
\noverseas investors, mainly London property. Due to the devaluation of pound
\nsterling, overseas investors found that the UK property is reasonably priced.
\nThe study conducted by the property investment firm, JLL, showed that 28% of
\nthe housing market transaction in 2016 was done by Asian investors (Vaswani,
\n2017). This could directly affect the Britons because those Asian investors
\ncould inflate the housing market by their unlimited demand. This means house prices
\ncould be overvalued for British citizen who are in need of the house.<\/p>\n

Stock Market<\/strong><\/h3>\n

The referendum also benefits the UK stock
\nmarket. This is because those multinational companies who
\nare listed in the London Stock Exchange (LSE) receive their revenue in other
\ncurrencies, mostly in dollars, which means the depreciation of
\npound could boost the company\u2019s profit (Inman, 2016). As
\na result, the stock price of the company rocketed after Brexit which means it
\ncreates the value for British company in the long term.<\/p>\n

British Citizens who live in EU country<\/strong><\/h3>\n

Technically, if Brexit did occur, the British
\ncitizens who live in the UK could become the illegal evacuees overnight. This
\nstatement was also supported by Dominic Grieve who is the UK former attorney
\ngeneral. Moreover, there is a possibility that British expats could lose their
\nright in the EU Health care system (Bennett, 2017). Thus, the negotiation might
\ninvolve such issues as the right to work, permitted license to possess the EU
\nproperty or even the entitlement to access the EU health care system.<\/p>\n

Conclusion<\/strong><\/h2>\n

In conclusion, the UK referendum could be the
\nbeginning of a period of unpredictability, especially for those in financial
\nsector. The asset management industry and the banks whose operations are based
\nin the UK could experience even worse predicament. As a result, some
\ninternational banks are now seriously considering the proposals of moving their
\noperation to the EU country, namely Frankfurt and Dublin. However, for those in
\nasset management, the strategies have not been changed. Fund managers still
\noptimistic on the UK equity market which directly benefits from weaker pound.
\nMoreover, for those in private bank sector, there is a determination to expand
\ntheir operations after Brexit. The weaker pound sterling also boosts the number
\nof international students and global investors in the UK, mostly those in
\nhousing and stock market. For Britons who live in the EU, there is a concern
\nabout losing their status as the EU citizens.<\/p>\n

References<\/strong><\/h2>\n

Arnold, M.
\n(2017, July 30). MUFG eyes Amsterdam as post-Brexit EU base. Financial \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Times<\/em>. Retrieved
\nAugust 12, 2017 from https:\/\/www.ft.com\/content\/158dcffe-7535-11e7-90c0-90a9d1bc9691<\/a><\/p>\n

Arnold, M. (2017, August 1). Brexit set to
\nraise UK banks\u2019 costs 4% and capital needs 30%. Financial Times. <\/em>Retrieved
\nAugust 5, 2017 from https:\/\/www.ft.com\/content\/9fdf35a4-7610-11e7-a3e8-60495fe6ca71<\/a><\/p>\n

Arnold, M.,
\nMartin, K., & Noonan, L. (2017, July 20). Citigroup and Deutsche Bank give
\nFrankfurt a Brexit boost. Financial Times<\/em>. Retrieved August 2, 2017 from
\nhttps:\/\/www.ft.com\/content\/1b38eb1a-6d55-11e7-b9c7-15af748b60d0<\/p>\n

Austen, M., Hunt, P., Kelly, D., Naylor, L.,
\n& Sants, H. (2016). The impact of the UK\u2019s exit from the EU on the UK-based
\nfinancial services sector. Oliver Wyman.<\/em> Retrieved August 2, 2017 from http:\/\/www.oliverwyman.com\/content\/dam\/oliver-wyman\/global\/en\/2016\/oct\/\u00a0\u00a0 Brexit_POV.PDF<\/a><\/p>\n

Bennett, A.
\n(2017, March 30). What will Brexit mean for British expats?. The telegraph<\/em>.
\nRetrieved August 19, 2017 from http:\/\/www.telegraph.co.uk\/news\/0\/eu-facts-what-would-leaving-the-eu-mean-for-expats\/<\/a><\/p>\n

Broadbent, B.
\n(2017). Brexit and the pound<\/em>. Bank of England. Retrieved from http:\/\/www.bankofengland.co.uk\/publications\/Documents\/speeches\/2017\/speech969.pdf<\/a><\/p>\n

CFA institute
\n(2017). What It Means for Investment Management Brexit: A guide for
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Franklin, J.,
\n& Gruber, A. (2016, March 2). UBS considers acquisitions to expand wealth management
\nin Europe. Thomson Reuters. <\/em>Retrieved August 15, 2017 from http:\/\/www.reuters.com\/article\/us-ubs-wealth-europe-idUKKCN0W41EB<\/a><\/p>\n

Gerrard, B.
\n(2017, July 13). Spanish business leaders suggest UK could be global trade hub post-Brexit.
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\nAugust 12, 2017 from http:\/\/www.telegraph.co.uk\/<\/a>
\nbusiness\/2017\/07\/13\/spanish-business-leaders-suggest-uk-could-global-trade-hub-post\/<\/p>\n

Greenhalgh, H., Mooney, A., & Williams, A.
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House of Lords EU Committee (2016). Brexit:
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Inman, P.
\n(2016, October 4). Q&A: falling pound, rising markets. Why is Britain\u2019s
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\nGuardian. <\/em>Retrieved August 12, 2017 from
\nhttps:\/\/www.theguardian.com\/business\/2016\/oct\/04\/qa-falling-pound-rising-markets<\/p>\n

Kelly, J.,
\n(2017, July 12). Investment in UK fintech tops pre-Brexit levels in first half
\nof 2017. Thomson Reuters<\/em>. Retrieved August 1, 2017 from http:\/\/uk.reuters.com\/article\/us-britain-fintech-investment-idUKKBN1AA2VN<\/a><\/p>\n

Miller, G.
\n(2017, August 12). Britain must ask for more time to negotiate Brexit. The
\nGuardian<\/em>. Retrieved August 16, 2017, from https:\/\/www.theguardian.com\/
\ncommentisfree\/2017 \/aug\/12\/britain-more-time-<\/a>negotiate-brexit<\/p>\n

Noonan, L.
\n(2017, July 21). Bank of America choose Dublin as EU base after Brexit. Financial
\nTimes<\/em>. Retrieved August 1, 2017 from https:\/\/www.ft.com\/content\/1fff392a-6e17-11e7-bfeb-33fe0c5b7eaa<\/a><\/p>\n

Stothard, M.
\n(2017, July 7). Paris rolls out \u2018red-white-and-blue carpet\u2019 for banks. Financial
\nTimes. <\/em>Retrieved August 12, 2017 from
\nhttps:\/\/www.ft.com\/content\/464c67d8-630e-11e7-91a7-502f7ee26895<\/p>\n

Vaswani, K.
\n(2017, April 28). Brexit not deterring Asian investors from UK property market.
\nBBC. <\/em>Retrieved August 17, 2017 from http:\/\/www.bbc.co.uk\/news\/business-39732816<\/a><\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Brexit: A bleak future for the financial sector? Abstract The word \u201cBrexit\u201d evolves from Britain and exit which is an unforeseeable situation that the UK is now facing. Brexit could cause damages to the UK economy in the long term, especially those in financial sector. The solutions to lessen the impacts of Brexit have been […]<\/p>\n","protected":false},"author":5,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7418,7513,5814],"tags":[7419,3319,5337,5587,5586,249],"class_list":["post-37487","post","type-post","status-publish","format-standard","hentry","category-affordable-essay-writing-service","category-essay-examples-finance","category-finance","tag-academic-paper","tag-assignment-help","tag-dissertation-writing","tag-essay-writing","tag-online-tutoring","tag-write-my-paper"],"_links":{"self":[{"href":"https:\/\/www.colapapers.com\/us\/wp-json\/wp\/v2\/posts\/37487","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.colapapers.com\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.colapapers.com\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.colapapers.com\/us\/wp-json\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/www.colapapers.com\/us\/wp-json\/wp\/v2\/comments?post=37487"}],"version-history":[{"count":0,"href":"https:\/\/www.colapapers.com\/us\/wp-json\/wp\/v2\/posts\/37487\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.colapapers.com\/us\/wp-json\/wp\/v2\/media?parent=37487"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.colapapers.com\/us\/wp-json\/wp\/v2\/categories?post=37487"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.colapapers.com\/us\/wp-json\/wp\/v2\/tags?post=37487"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}