From the first of February, the European Union has 27, not 28 countries so far. Great Britain decided to leave the community. At the same time, the so-called transition period set out in the Agreement on the withdrawal of Great Britain from the EU, which will last until the end of 2020. It means that from February 1, the method of handling transactions involving the United Kingdom has not changed: transfers to and from the UK and card transactions in the United Kingdom will be carried out according to the existing rules.
How will Brexit affect the EU financial sector?
Institutions whose headquarters are located in the British Isles constitute a significant part of the banking market. Therefore, Brexit will have a huge impact on the functioning of the financial sector. One of the most important issues during the negotiations will be the possibility of British banks operating within the single market under the current rules. – It turns out that around 80 percent transactions in derivatives are carried out by British financial institutions. But even such a basic thing as the credit market – as much as a quarter of this market belongs to British banks.
What is more, because of Brexit, the UK financial sector will lose a trillion pounds and around 7,000 jobs – according to the latest EY report. Before leaving Great Britain, many economic institutions moved their headquarters among others from London to other European capitals. Together with them disappeared very large assets.
London Financial center
London is the largest financial center when it comes to transactions in euros and this will not change in the short and medium term. We also need to realize that a large part of the job transfer to the EU is due to the fact that many entities with headquarters in London establish branches within the European Union. This does not change the fact that for them London will still be the main place of business. There, investors from all over the world meet with business entities from Europe.
According to analyzes of the Bank of England, which is considered the “guardian of the British pound,” Great Britain accounts for half of the debt issue in the European Union. In addition, most transactions in euros are still settled in London. A report published on the British Parliament website says that financial services account for 7 percent. economic production of the country and over a million jobs. For decades, the City of London was and after parting with the Union intends to remain a continental and global financial center.
Passporting – why does it matter?
Despite the positive forecasts for London City so far, British economists believe that London’s future as a global financial center depends on whether the United Kingdom will continue to have so-called passporting (single passport rule). Thanks to passporting, i.e. the principle of one passport, financial companies that are registered in one Member State can provide their services in other European Union countries.
To sum up
What has for many years been one of the principal drivers of growth and prosperity will probably be affected. Simply, London is unlikely to collapse as a financial centre, but it seems inevitable that even more of the capital’s financial firms will move elsewhere. Sooner or later, the unintended consequence of Brexit could be a new wave of innovation in the financial services industry as a broader range of players take control of the industry’s direction. The true winners will be those best setup to capitalize on this opportunity. All in all, when there is a change there is always a possibility as well.