Impact of Brexit on UK financial services nears £4bn despite delay

The direct financial impact of Brexit on major financial services firms in the UK has almost reached £4bn, as of 31 May 2019, EY’s Financial Services Brexit Tracker revealed.

Since the EU Referendum in 2016, British financial services firms have disclosed £1.3bn of relocation costs, legal advice, contingency provisions, along with an additional £2.6bn for capital injections to scale new non-UK headquarters.

However, EY noted that just 13 of the 222 firms monitored by the tracker have put a figure on the direct financial impact of Brexit, meaning that the actual figure is likely to be higher. Despite this, in the past three months, there has been a three-fold increase in the number of statements from financial services companies announcing a tangible impact on their business as a result of Brexit.

Furthermore, the Brexit tracker highlighted that the number of planned jobs (7,000) and assets (£1trn) transfers remained flat from the last quarter, suggesting that firms have paused or slowed down their Brexit preparations after the extension to 31 October was announced. According to EY, many firms “appear reluctant” to make the final decision to move until they absolutely must.

The tracker underlined the impact of Brexit on the economy has also had a knock-on effect for the financial services sector, with slow demand for credit and low interest rates hitting revenues. An additional 13 firms, monitored by the tracker, cited some financial detriment from Brexit, without quantifying the cost, covering share price falls, lower profits, dividend cuts, a slowdown in lending, loss of customers and reduced capital market activities.

However, 26 firms claimed that Brexit has had a positive impact on their business, with a further 12 firms flagging short-term opportunities from the UK leaving the EU, primarily benefitting from market volatility.

Commenting, EY UK financial services leader Omar Ali said: “So far, only a small proportion of the largest, listed Firms have put a number on potential costs, which means this number is likely to be a drop in the ocean as Firms prepare to do business post-Brexit. The financial impact of Brexit is beginning to fall to the bottom line, and Firms are now making a direct link between financial performance and the tangible commercial impacts of Brexit.

“Capital deployed for supporting new non-UK headquarters is value which is not being returned to shareholders or reinvested in UK businesses. Over time some of this capital may flow back to the UK, but currently is a net loss for our economy.

“The past three months have seen most Firms to some extent pause their Brexit planning with both planned jobs and assets moves remaining flat. However, in the last few weeks we have seen some Firms restarting their programmes and we expect preparation activity for a no-deal to increase markedly throughout the summer.”

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