London’s Financial Service Sector Remains in Post-Brexit Limbo

In the weeks since Brexit became a reality, the whole UK economy has been something of a mixed bag. On one hand, predictions of immediate and outright Armageddon for the country’s entire business community turned out to be exaggerated. On the other hand, there are those who still see a doomsday scenario, but not just yet.

Either way, the financial services sector is currently in a state of limbo, with various forecasts and opinions. In 2019, the sector’s total economic contribution was an enormous 7%, somewhere in the region of £132 billion. It is also a surprisingly prolific employer, creating at least 1 million jobs, a sizeable portion of which are based in the City of London.

To date, no formal agreement has been made between London and Brussels with regard to the regulation of financial services following the UK’s departure from the EU. Talk continues of an agreement by the proposed March 31 deadline, but nothing has yet been set in stone.

This has had the potential to prove problematic, given how the financial institutions in the UK trade euro-denominated shares and bonds from within the euro bloc. Measures have been established to temporarily enable such trades to continue, and the Financial Conduct Authority is allowing companies in the UK to trade EU derivatives until June, but what happens next is a subject of heavy debate.

No mass exodus from London

Late last year, it was estimated that a minimum of 7,500 jobs and more than £1.2 trillion in assets had been relocated from the UK on the part of financial institutions and service providers preparing for the chaos to follow; however, many predictions of a mass exodus from London have so far turned out to be somewhat exaggerated, and many new European finance houses have instead relocated to London to ensure access to the UK market.

Deutsche Bank, for example, warned last year that as many as 4,000 workers would be moved to Frankfurt after Brexit. As of now, Deutsche Bank and other major players appear to be holding out, waiting to see what actually happens before making any major decisions.

Depending on the agreement reached between London and Brussels, it could become entirely unnecessary for the financial services sector to suddenly extract many thousands of workers from the UK. This will only occur if equivalence is not granted for specific segments of the market, which may or may not happen.

Strong forex sector

Irrespective of the above, Brexit has so far had no negative impact whatsoever on currency trading in the City of London. The UK continues to account for almost 45% of the entire global forex market, which over the past three years has achieved growth of six percentage points.

The United States is the second-biggest player in currency trading, with a market share of around 16.5%.

London will continue to be one of the world’s most attractive locations for currency trading, not least due to its strategic position and time zone midway between Asia and the USA. This is unlikely to be affected by any Brexit-related issues, particularly while the EU’s currency trading experience and infrastructure remain so broadly distributed and fragmented.