Effect of Brexit on the Financial Sector

Effect of Brexit on the financial SectorBrexit A double-dyed(a) future for the financialsector?AbstractThe word Brexit evolves from Britain and exit which is an unforeseeable situation that the UK is at once facing. Brexit could elbow grease damages to the UK economy in the pine term, curiously those in financial sector. The solutions to lessen the impacts of Brexit stick been illustrated in this move. This essay besides aims to discuss the impacts of Brexit on summation management service and the desireing exertion. It volition then survey these impacts on different aspects international students, UK accommodate market, entrepot market and Britons who blend in in EU countries.IntroductionOn 23 June 2016, the United Kingdom held areferendum whether to leave the European Union (EU) or not. Most Britonsbelieved beforehand that the UK would not leave the EU. Surprisingly, theresult was 52% of the voters trenchant to leave the EU (CFA INSTITUTE, 2017). Asa result, Davi d Cameron who, at that time, was the prime minister of the UK hadto resign. Subsequently, the position in charge was taken by Theresa May.Following this step, on 29 March 2017, the UK g all overnment has formally announcedits invoking of Article 50 which is the initial step to formally exit from theEU. Thus, the word Brexit evolves from Britain and Exit. The suffice must befinalized within two years. This center, in March 2019, the negotiation has tobe done. However, from a very recent Guardian clause, this process could bepostponed because on that point are overbold variety ofregulations which expect to be implemented and umpteen institutions that require newstaffs to operate (Miller, 2017).It appears highly likely that once Brexitoccurs, Britain give retire its right to tariff-free access to the EU market. In early(a) words, UK-based firms, especially those in the financial sector, may beunable to conduct their operations throughout the EU. As a result, foreignfinancia l institutions whose European home base are located in the UK mustreconsider their last on whether to continue operating their managementfrom the UK or not. This could cause farseeing-term ostracize consequences to the UKeconomy. Therefore, this essay will discuss the impacts of Brexit on financialservices, sorticularly asset management and the canting, moving on this essaywill excessively evaluate these impacts on Britains post-Brexit future.Financial ServicesFinancial services are the economic activitiesthat are involved in the flow ofmoney in the financial frame. The services include asset managementwhich is the service that aims to apportion money to maximize the profit.Additionally, the blasphemeing is an institution which mainly provides much(prenominal) servicesas accepting deposits and issuing loans to clients. Those activities havebecome one of the crucial split of the UK economy and it provides anopportunity for the UK to influence human beings banking industr y. According to theHouse of Lords EU Committee, 7-12 share of GDP of the UK, 7-12 percent ofemployment ratio and 11 percent of tax receipts are ruled by the financialservices. Furthermore, the largest employment surplus of the UK in 2014 was thefinancial services which accounted for 58 billion of which 19 billion is the dish out with the EU country Austen, Hunt, Kelly, Naylor, & Sants, 2016).However, this positive mount could peradventure be worsened by thereferendum which was held on 23 of July 2016.This is also a major concern for the financialservices. As a consequence of Brexit, it is forecasted that the UK could lose31000-35000 job positions in financial services. In addition, the worstscenario, this number could ontogeny to 40000 (Arnold, 2016). This numberaccounted for 3-4 percent of job position involving with the financial servicesin the UK (Austen et al., 2016).Asset management servicesAsset management is referred to an activity ofgenerating returns for investors fro m the with child(p) which is subsidized by investors.According to the Investment Association and the Financial demeanor Authority,the UK asset under management (AUM) is 6.9 trillion, approximately, of which2.2 trillion is the overseas client. In addition, 55 percent of the overseasclient, or 1.2 trillion, is the European clients (CFA INSTITUTE, 2017). Thiscan be state that the asset management industry has played a crucial part in theUK economy. Moreover, losing the right to access the EU market could possiblycause long-term problems to the UK economy. After Brexit, the UK-based investment firmcould witness severe problems financial support the EU clients, as claimed byChristian Nolterieke, managing director at MyPrivate lodgeing question(Greenhalgh, Mooney, & Williams, 2017). In order to serve clients andrecruit talented people in the EU, they must acquire the tariff-free authorise toaccess the EU market which the UKs license will no longer be valid if they quest for Brexit. M oreover, the advertisement and marketing are also prohibitedfrom the non-european economic orbital cavity (EEA), as stated by Nolterieke. There mightbe nigh solutions to cope with this issue. One of them is to establish an social occasion in Europe. However, to do so, the line of descent must be in a large scale.This is because establishing office in Europe requires high amount of capital,well-corporate structure, office, and people, as stated by Julie Patterson whois the consultant of asset management global Brexit at KPMG (Greenhalgh,Mooney, & Williams, 2017). Furthermore, to establish an office in Europe,the regulation of the Markets in Financial Instruments Directive, known asMiFID, requires 20 or more employers onshore. As a result, finding a partner of stage argument in Europe could possibly be the most moderate mode to lessen the effect of Brexit, as determined by NathanBostock who is now the decision maker directors of Santander UK (Gerrard, 2017).This is because the U K-based firm is still benefit from being a partner withEurope-based firm, stock-still though the benefit is not fully equivalent to the past.It is a manner called profit-sharing in which it could stimulate the UK andEurope economy in the long-term.Surprisingly, in 2017, the inquiry conductedby the CFA demonstrated, the institution which is the community of blood managers,have shown that two- third gears of the fund managers have not changed theirinvestment horizon later on Brexit. Theoretically, this might be because the fundmanagers tend to invest in the justice market which the price of the palenesscould increase when the beat is depreciated.The BanksIn this essay, the types of bank will be categorize into three types commercial bank, retail bank and investment bank.Firstly, commercial bank is a financial institution which mainly provides suchservices as deposit and withdraw of money and offers loans tobig business. Secondly, unlike commercial bank, retail bank or consume r bankprovides the same services to customers in a non-business sector. Lastly,investment bank is not the bank who provides such services as accepting moneyor issuing loans services. On the other(a) hand, it is the bank who providesadvises on stock market launch, mergers and acquisition or even victorious overother lodge.The impact of Brexit on these types of bankscould cause the similar problems as in asset management services. This ismainly because the EU requires the approval of Markets in Financial InstrumentsDirectives (MiFiD) to allow banks to operate in the EU. In order to avowMiFiD status, the UK must be part of the European Economic Area (EEA). Thiscircumstance is not likely to occur if the UK favours a hard Brexit. This isbecause hard Brexit means the UK has to relinquish its MiFid license as itwill no longer be valid. As a result, this occurrence causes the worldsleading financial institutions to leave the UK.genus Paris has been one of the biggest rivals forthe Euro pean financial centre since the UK referendum. However, due(p) to the highcorporate tax rate, 33.3 percent, this effects Pariss attracter to belessen (Stothard, 2017). In this sense, the opportunity is now belonging tocapital of Ireland because 12.5 percent tax rate in Ireland could attract the firms fromall over the world. Moreover, those firms who wish to move to Ireland do notneed to establish new banking license. This is exemplified by the announcementfrom the Bank of the States, the second largest bank in America by total asset,that the bank has chosen Dublin as the headquarter office for its EU operationafter Brexit (Noonan, 2017). Brian Moynihan, chief decision maker officer of theBank of America, also told the Financial Times that Weve been working withthe Central Bank of Ireland to set down it all set up and its been a very staticprocess so far. The politics is trying to help us motor through the regulatoryprocess. (Noonan, 2017). As a consequence of the support from the governmentand an existing banking license of Dublin, it could support the Bank of Americato accomplish its process ahead of Brexit easily.capital of Kentucky has also competed for the position ofpost-Brexit financial centre. From the announcement of Deutsche Bank, thelargest bank in German, they will transfer most of their assets and operationto capital of Kentucky in this autumn (Arnold,Martin, & Noonan, 2017). This could be one of the largest transferof single EU bank, as stated by the chief executive officer, John Cryan.Another decision made by Citigroups Europe, Middle East and Afica (EMEA) chiefexecutive office, Jim Cowles, that the bank decided to move theirs main tradingoperation to Frankfurt (Arnoldet al., 2017). This is because Frankfurt is well known for itsinfrastructure and skilled workers which the bank has already had on ground, asclaimed by Mr.Cowles. These actions from two of the largest bank in the worldcould threaten Britains economic in the long term, indeed. Undoubtedly,international banks such as Nomura Holdings, the fifth largest bank by assetand Sumitomo Mitsui Banking Corporation which is the third largest bank inJapan by asset have already published their plan on moving their main operationto Frankfurt after Brexit (Arnold, 2017).Turning to another side of the issue, there areseveral(prenominal) private banks who are now enlarging their services in the UK. Accordingto the Financial Times, the senior executives at the following banks CreditSuisse, UBS, Socit Gnrale and Pictet announced that the companies willexpand their operation and investment in the UK (Arnold, 2017). Thisis because the UK is still attractive in terms of market potential. In otherwords, the wealthy clients still find an opportunity in the UK. This idea wasalso supported by Jakob Stott who is the EU head of UBSs wealth managementbusinesses (Franklin & Gruber, 2016).Britains post-Brexit future International StudentThe UK has been known for its tonus ofeducation barely this might be extravagant for international student to study inthe UK. However, due to the UK referendum, the pound sterling witnessed a hugedrop after the vote had been officially announced (Broadbent, 2017). This dropbenefits international students presently because the pound depreciated in itsvalue, comparing to other property. In other words, international students inthe UK spend less budget on their course and accommodation. To illustrate, oneof Tai students claimed that the cost of their study which includes tuitionfee, accommodation and living expense is now 15 percent lower, approximately. This means there would be a sailplane in a number ofinternational applicants who desire to pursue the quality of the UK education.UK PropertyProperty in the UK has always been a target foroverseas investors, mainly London situation. Due to the devaluation of poundsterling, overseas investors found that the UK property is reasonably priced.The study conducted by the property inv estment firm, JLL, showed that 28% ofthe house market transaction in 2016 was done by Asiatic investors (Vaswani,2017). This could directly affect the Britons because those Asian investorscould inflate the housing market by their interminable demand. This means house pricescould be overvalued for British citizen who are in need of the house.Stock MarketThe referendum also benefits the UK stockmarket. This is because those multinational companies whoare listed in the London Stock Exchange (LSE) receive their revenue in othercurrencies, mostly in dollars, which means the depreciation ofpound could boost the companys profit (Inman, 2016). Asa result, the stock price of the company rocketed after Brexit which means itcreates the value for British company in the long term.British Citizens who live in EU countryTechnically, if Brexit did occur, the Britishcitizens who live in the UK could become the illegal evacuees overnight. Thisstatement was also supported by Dominic Grieve who is t he UK former attorneygeneral. Moreover, there is a possibility that British expats could lose theirright in the EU Health care system (Bennett, 2017). Thus, the negotiation mightinvolve such issues as the right to work, permitted license to possess the EUproperty or even the entitlement to access the EU health care system.ConclusionIn conclusion, the UK referendum could be thebeginning of a period of unpredictability, especially for those in financialsector. The asset management industry and the banks whose operations are basedin the UK could experience even worse predicament. As a result, someinternational banks are now gravely considering the proposals of moving theiroperation to the EU country, namely Frankfurt and Dublin. However, for those inasset management, the strategies have not been changed. Fund managers stilloptimistic on the UK equity market which directly benefits from weaker pound.Moreover, for those in private bank sector, there is a determination to expandtheir ope rations after Brexit. The weaker pound sterling also boosts the numberof international students and global investors in the UK, mostly those inhousing and stock market. For Britons who live in the EU, there is a concern near losing their status as the EU citizens.ReferencesArnold, M.(2017, July 30). MUFG eyes Amsterdam as post-Brexit EU base. Financial Times. Retrieved marvelous 12, 2017 from https//www.ft.com/ circumscribe/158dcffe-7535-11e7-90c0-90a9d1bc9691Arnold, M. (2017, August 1). Brexit set toraise UK banks be 4% and capital needs 30%. Financial Times. RetrievedAugust 5, 2017 from https//www.ft.com/ sum/9fdf35a4-7610-11e7-a3e8-60495fe6ca71Arnold, M.,Martin, K., & Noonan, L. (2017, July 20). Citigroup and Deutsche Bank giveFrankfurt a Brexit boost. Financial Times. Retrieved August 2, 2017 fromhttps//www.ft.com/content/1b38eb1a-6d55-11e7-b9c7-15af748b60d0Austen, M., Hunt, P., Kelly, D., Naylor, L.,& Sants, H. (2016). The impact of the UKs exit from the EU on the UK-basedfina ncial services sector. Oliver Wyman. Retrieved August 2, 2017 from http//www.oliverwyman.com/content/dam/oliver-wyman/global/en/2016/oct/ Brexit_POV.PDFBennett, A.(2017, March 30). What will Brexit mean for British expats?. The telegraph.Retrieved August 19, 2017 from http//www.telegraph.co.uk/news/0/eu-facts-what-would-leaving-the-eu-mean-for-expats/Broadbent, B.(2017). Brexit and the pound. Bank of England. Retrieved from http//www.bankofengland.co.uk/publications/Documents/speeches/2017/speech969.pdfCFA institute(2017). What It Means for Investment Management Brexit A guide forinvestment professionals. Retrieved from https//www.cfainstitute.org/ ethics/Documents/guide_to_brexit.pdfFranklin, J.,& Gruber, A. (2016, March 2). UBS considers acquisitions to expand wealth managementin Europe. Thomson Reuters. Retrieved August 15, 2017 from http//www.reuters.com/article/us-ubs-wealth-europe-idUKKCN0W41EBGerrard, B.(2017, July 13). Spanish business leaders suggest UK could be global trad e hub post-Brexit.The Telegraph. RetrievedAugust 12, 2017 from http//www.telegraph.co.uk/business/2017/07/13/spanish-business-leaders-suggest-uk-could-global-trade-hub-post/Greenhalgh, H., Mooney, A., & Williams, A.(2017, August 2). Brexit is going to be a mess for UK wealth management. FinancialTimes. Retrieved August 9, 2017 from https//www.ft.com/content/f2451362-147d-11e7-80f4-13e067d5072cHouse of Lords EU Committee (2016). BrexitFinancial Services (9th Report of Session 201617). Retrieved July 10, 2017from https//publications.parliament.uk/pa/ld201617/lds cull/ldeucom/81/81.pdfInman, P.(2016, October 4). Q&A falling pound, rising markets. Why is Britainscurrency suffering while shares in its biggest companies are soaring ?. TheGuardian. Retrieved August 12, 2017 fromhttps//www.theguardian.com/business/2016/oct/04/qa-falling-pound-rising-marketsKelly, J.,(2017, July 12). Investment in UK fintech tops pre-Brexit levels in first halfof 2017. Thomson Reuters. Retrieved August 1, 20 17 from http//uk.reuters.com/article/us-britain-fintech-investment-idUKKBN1AA2VNMiller, G.(2017, August 12). Britain must ask for more time to negotiate Brexit. TheGuardian. Retrieved August 16, 2017, from https//www.theguardian.com/commentisfree/2017 /aug/12/britain-more-time-negotiate-brexitNoonan, L.(2017, July 21). Bank of America choose Dublin as EU base after Brexit. FinancialTimes. Retrieved August 1, 2017 from https//www.ft.com/content/1fff392a-6e17-11e7-bfeb-33fe0c5b7eaaStothard, M.(2017, July 7). Paris rolls out red-white-and-blue carpet for banks. FinancialTimes. Retrieved August 12, 2017 fromhttps//www.ft.com/content/464c67d8-630e-11e7-91a7-502f7ee26895Vaswani, K.(2017, April 28). Brexit not deterring Asian investors from UK property market.BBC. Retrieved August 17, 2017 from http//www.bbc.co.uk/news/business-39732816