The UK’s upcoming divorce from the EU will not come without costs, and no matter what the eventual scenario, those costs will be substantial and far-reaching, on both sides of the fence. UK banks already have a lot on their plates in the form of new-regulation compliance, but it is now or never to prepare for EU-27 inclusion after March 2019.
Financial institutions in the UK are waking up to the inevitability of Brexit, and thus they are beginning to budget for contingency plans, especially after the Bank of England requested that banks submit their plans for a hard exit. Planning ahead now is certainly prudent, as not doing so is guaranteed to leave banks struggling to cope with new regulations and changing market conditions.
Although the fine details have yet to be ironed out, there is no doubt that Brexit will have significant and long-lasting effects on financial-services institutions and businesses in the UK and the EU27. A hard-Brexit is the most jarring scenario, so what are the likely costs of a hard landing after all the negotiations are completed and the dust settles?
Just as the United Kingdom appeared to be making some progress on determining its route out of Europe, British politics once again threw up the most unpredictable of scenarios. The nation’s general election on June 8 resulted in Prime Minister Theresa May’s Conservative Party failing to win a parliamentary majority.
UK voters chose independence, but at what cost to their own financial industry and those of other nations? EU negotiators are not liable to go easy on the breakaway nation, fearing that others may follow suit, so the UK’s hopes for a soft Brexit are unlikely to be realized; casting doubts about London’s future preeminence as a prime financial hub.
Financial managers need to know what to expect, but in the UK with the inevitability of Brexit there are as many or more unknowns as there are knowns, especially in relation to trade and trade finance. To reduce risks, policymakers who negotiate the terms of the Article 50 process should consider from the start how their decisions will affect trade and its finance.
Since the United Kingdom took the decision to opt out of the European Union (EU) last June, a wave of populist, anti-European sentiment has swept across the continent, putting the very existence of the political bloc under threat.
The implementation of the Brexit separation of Britain’s financial system from that of the European Union remains more loaded with questions than answers. Bankers are hoping for a gentle divorce, while the government of Britain is indicating a harder stance—guaranteeing a process that will be costly in more ways than one.
After several years of rather unspectacular market activity, gold came roaring back in 2016. The year saw investment demand for the precious metal rise by 70 percent, while gold-backed exchange-traded funds (ETFs) experienced their second-highest inflow of investor interest on record.
We know through experience that preparing for the worst is a wise strategy, which is why most financial institutions in the UK are currently banking on a “hard Brexit” scenario. No matter what exactly transpires after Article 50 of the Lisbon Treaty is officially invoked, hard work lies ahead, and plenty of it.