Essay on the Impact of Brexit on UK Financial Service Industries

Introduction

The Brexit concept in the United Kingdom has had and will have consequences for financial markets, especially for major firms that operate in the country. A literature review on the topic of discussion will help prove helpful in unfolding facts and the fate that befalls the UK post-Brexit (Armour, 2017). For instance, the country’s financial service industry is likely to face regulatory, economic, and cross-border implications because of the decision that the country made to leave the European Union. Notably, pass-porting for UK based financial institutions will be challenged by the new move, which will be detrimental to efforts to bolster their market base (Hohlmeier and Fahrholz, 2018). The study aims to examine conduct a background check on the topic of discussion and establish what other authors have presented in the past. Secondary literature available from various sources will help gather important information for a formidable conclusion.

Literature Review

Impact on Pass-porting for UK based firms.

Pass-porting implies a scenario where UK based firms are allowed to market and operate under their conditions within the European market. The financial service industry in the United Kingdom is ranked second in operations after New York, United States (Cazan, 2017). Thus, leaving the European Union has an impact on various operations for the insurance and banking industries. In the year 2017, Cazan committed to researching the implications of Brexit on England’s banking system. In the research, the author has expressed concern for a low activity for UK based firms as they will have no pass-porting rights within various markets (Cazan, 2017). The fact that such firms will need to operate under regulations that they have no influence makes it difficult to maneuver in foreign markets post the Brexit era (McCarthy and Van Coppenolle, 2018). The report applied an event study approach to gather necessary information before concluding on the impact of Brexit on England’s banking system. With Brexit, UK based firms will have to cope with agreements that they do not hold much power for negotiation. This will significantly affect the financial services industry within London and other regions in the UK.

Economic Impact

Brexit is a factor that will affect the economic landscape of the United Kingdom to a large extent. London is one city in the world with numerous financial institutions from all over the world, which means leaving the European Union will significantly impact the economy (Howarth and Quaglia, 2018). Banks, insurance companies, and other financial institutions offer support services that are necessary for the economy’s growth in general. Leaving the union will mean less activity for financial institutions, hence less profits. External banks that operate within the UK will be required o increase their rates as operating in the economy would prove expensive (Kadiric and Korus, 2019). Kadiric and Korus, in the year 2019, researched the impact of Brexit on credit spreads within the United Kingdom. The researchers established that with the reforms expected, the financial service industry in the UK would be affected significantly since numerous international banks are in operation (Kadiric and Korus, 2019). Some will not have operating licenses within new territories, which might prove challenging for the country’s financial system to pick again. The research identifies the fact that most of the economic implications that financial services firms will face are financial related due to reaction steps that both the UK and the European Union put in place.

Implication for cross-border Trade

Cross-border trade operations in the UK will be affected, which has a significant consequence on the financial operations for banking and non-banking financial institutions (Howarth and Quaglia, 2018). As noted earlier, UK based firms will have no right to dictate terms under which they operate Past the Brexit move. According to Cardi, in the year 2017, Brexit will imply more complications for free trade between countries that border the UK. It is important to consider the fact that the UK’s financial governance and management approaches have to change to accommodate replacing the equivalence and free trade policies that were in place (Cardi, 2017). The research also recognizes the UK as a major player in impacting financial capital markets to a larger extent. There is a likelihood for more financial risks in the market for UK based firms that operate overseas (Cardi, 2017). Cross-border trade enables consumers in the financial market to enjoy services and low-interest rates within the European Union. Brexit will challenge free trade operations, hence attract high-interest rates in the financial market.

Impact on Currency and Exchange rates

A reduced profit margin is likely to hit UK based financial services due to the Brexit happening. This is because, with the UK out of the European Union, other countries will be forced to set up regulations that limit operations within the UK (Goodwin and Heath, 2016). In the event, the value of the British currency will change depending on the circumstances and profits obtained. Equally, stable exchange rates are the very reason most financial markets have done well in the past, including the British Pound. Goodwin and Heath, in the year 2016, expressed their view on the probable impact of Brexit on the UK’s financial market. In the research, the authors established that poverty, low skills, and other issues might challenge the country’s economy (Goodwin and Heath, 2016). Brexit will deprive the financial markets of professional experts who are creative enough to take the industry to the next level.

Conclusion

To sum it up, a background check on the discussion topic is necessary to establish what the rest have thought and authored. Research indicates that the financial service industry in the UK will be affected to a large extent. For instance, UK firms will have a problem in pass-porting their operations to external markets. Equally, there is a likelihood of growing regulatory pressure for financial institutions. Free trade agreements and equivalence options for the firms will be revoked post-Brexit. Such moves will hurt financial institutions that depend on various customers from various economies to run. Brexit is a move that will hurt the financial market within the UK to a large extent due to aspects such as fluctuation of exchange rates and lack of adequate professionals to spearhead innovation.

References

Armour, J., 2017. Brexit and financial services. Oxford Review of Economic Policy, 33(suppl_1), pp.S54-S69.

Cardi, M., 2017. Brexit Implications on Capital Market and International Financial Governance. Journal of Modern Accounting and Auditing, September, 13(9), pp.385-393. Cardi, M., 2017. Brexit Implications on Capital Market and International Financial Governance. Journal of Modern Accounting and Auditing, September, 13(9), pp.385-393.

Cazan, S.A., 2017. Brexit Implications Over The England Banking System–An Event Study Approach. Journal of Public Administration, Finance and Law, (11), pp.81-92.

Goodwin, M.J. and Heath, O., 2016. Brexit vote explained: poverty, low skills and lack of opportunities.

Hohlmeier, M. and Fahrholz, C., 2018. The Impact of Brexit on Financial Markets—Taking Stock. International Journal of Financial Studies, 6(3), p.65.

Howarth, D. and Quaglia, L., 2018. Brexit and the battle for financial services. Journal of European public policy, 25(8), pp.1118-1136.

Kadiric, S. and Korus, A., 2019. The effects of Brexit on credit spreads: Evidence from UK and Eurozone corporate bond markets. International Economics and Economic Policy, 16(1), pp.65-102.

McCarthy, O. and Van Coppenolle, M.C., 2018. Brexit: the impact of Brexit on financial institutions. Avantage Reply.