There has been much focus on attempting to forecast the outcomes Brexit will have on Britain’s dominant sector, Financial Services (FS). These forecasts attempt to provide clarity within the greatest period of legislative uncertainty in the post-war era.
Harry Parsons argues that the British government and finance must work together closely to create positive outcomes and calm fearful Brexit sentiments.
However, much of the focus has been on modelling the effects of these fears, and discourse has scarcely touched upon their roots. The public motivations behind voting to leave the European Union (EU) are unlikely to ever be clarified.
Yet, the causes of concern to FS can be discussed with greater ease. For the first time in many years, British financial services are at the mercy of the government.
To many, Brexit constitutes a public rejection of an established neoliberal order, a strike against the consensus that free market capitalism is the fairest mode of wealth distribution. Other individuals assert that Brexit will precipitate a ‘race to the bottom’, with the lowering and abolition of regulations that may heighten levels of both market and operational risk.
Yet, there is one cause for concern that unifies most stakeholders, and it is a particularly simple one. Brexit cannot be modelled or understood through conventional means. It is a revolution, a moment of reinvention and change driven by emotion, not logic. Institutions within financial services are typically able to model many of the risks they face. However, true fear lies in being dealt a hand that cannot be understood or modelled.
Now that much of the divorce agreement has been finalised, 2018 is set to be the year where future trading agreements are clarified. These arrangements are set to be of far greater importance to financial institutions.
Many advocates of Brexit have acknowledged that, in the short term, there will be financial damage. Advantages are cited to sit in the mid to long term, where the restoration of legislative autonomy delivered by Brexit will permit changes to EU mandated regulation and the formation of wider, more expansive trading relationships.
Once more, this creates great concern for financial services.
Due to these lengthy timescales, it is perfectly plausible that changes in UK law will be instigated by a different government to the one that negotiates the divorce agreement. Many political commentators believe that Jeremy Corbyn’s radical Labour Party are likely to win the next general election, held in 2022.
Corbyn argues for significantly tighter regulation of financial services. If this opportunity for change is left to a government that do not envision financial services as the engine of British growth, it can be asserted that this may compromise the growth and profitability of the sector.
Yet, this is just another hypothetical.
Many businesses have attempted to combat uncertainty by undertaking studies on the impacts of Brexit on both their business and the wider sector. Consensus dictates that financial services will be disproportionately impacted by Brexit. Whilst the industry can dictate the basic principles of disruption, it is still very difficult to prescribe mitigative strategic and operational changes.
Fear of disruption is forcing many UK based businesses to explore relocation to Europe, as they can clearly understand the conditions of operation within Europe. Relocating to the EU is becoming a popular option, as it allows a choice between the certainty of EU market access and the uncertain future of the UK market.
Reducing Brexit to its simplest terms, it has always been a risk-laden choice between a future of unquantifiable potential and a stable present state. This choice has not yet been vanquished from collective imaginations. Organisations are left with the choice of embracing a changing future and reasserting themselves in new market conditions or deciding to replicate the pre-Brexit model as closely as they can.
It remains a binary conundrum, the fear of the unknown counterbalanced by the stability of the present. What remains clear is that the influence of politics over finance is beginning to be reasserted.
Government often characterises itself by the movement between two disparate extremes, a condition no more evident in the fluctuation between opposing paradigms of extreme regulation and subsequent non-interventionism that characterised the 20th century.
Cooperation between the government and finance is key to finding a middle way, balancing risk with stability and creating conditions for the continued success of British financial services.