Worst of Brexit effect might be over for UK finance sector jobs

Leaving the EU had been an expected death knell for finance sector jobs in the U.K., and London in particular, but the slowing pace of jobs moving out suggests the worst may be over.

According to a survey from EY, which provides a snapshot of the financial services sector in the U.K. as Brexit takes effect, the total number of job relocations has only risen slightly.

It found that since the 2016 referendum in which the U.K. decided to leave the EU, relocations rose to nearly 7,600 in January, up from 7,500 in October 2020, with 95 out of 222 (or 43%) of firms in the survey saying they have moved or plan to move some U.K. jobs to Europe.

Dublin and Luxembourg were the most favored EU destinations benefiting from the U.K.’s losses, with Frankfurt, Paris, and Madrid recording smaller gains.

Along with jobs, financial firms have been transferring assets to their operations within the EU. The amount transferred is estimated at almost £1.3 trillion ($1.8 trillion), up from £1.2 trillion in October 2020.

Damage expected

Just over a quarter of firms said in the latest EY survey that Brexit has already dented or is expected to dent their business, a rise from around 22% previously.

The EY survey monitors the public statements made by 222 of the largest financial services firms with significant operations in the U.K.

The U.K. fell out of the EU on Jan. 1, and the divorce deal between the two sides was only decided on Christmas Eve. The agreement dealt mainly with trade in goods and is silent on the future of the financial services sector.

“U.K. and EU firms are now awaiting the details of the upcoming MoU [memorandum of understanding] on financial services and will shortly face into a new round of Brexit discussions on the framework that will ultimately define the future relationship,” Omar Ali, EY’s EMEIA financial services managing partner for client services, said in a news release.

He warned that uncertainty over the rules may lead to fragmentation of European markets, which may benefit the U.S. and Asia at the expense of the EU and U.K. He urged focus on the complex issues surrounding data, capital, skilled talent, and frictional costs.

Equivalence

Recent headlines have tended to focus on areas of “equivalence,” which refer to the recognition of good regulation and practice between the two sides, enabling the EU and U.K. to conduct financial transactions as previously. Equivalence would, in theory, help stem the transfer of jobs.

Earlier in February, Bank of England governor Andrew Bailey went on record to warn that the EU’s expectations on the subject of equivalence were “unrealistic,” suggesting that tough negotiations still lie ahead.

“The EU has argued it must better understand how the U.K. intends to amend or alter the rules going forwards,” he said in a much anticipated speech.

“This is a standard that the EU holds no other country to and would, I suspect, not agree to be held to itself. It is hard to see beyond one of two ways of interpreting this statement, neither of which stands up to much scrutiny” he added.