The impacts of Brexit on the European Financial Services ecosystem

le 31/10/2017

The Institut Louis Bachelier, a French sponsored network of research in economy and finance, and Eurogroup Consulting have combined to produce a study on Brexit which gives insights into its impacts the UK financial services ecosystem and the other continental European financial centres

Based on the data gathered from primary and secondary sources of information, this study takes into account quantitative as well as qualitative elements, in order to provide an insight into the impacts of Brexit on the financial services market, with a particular focus on the corporate and investment banking sector.

This study highlights the negative effects that are experienced by the main players of the aforementioned ecosystem, caused by the loss of passporting rights and the relocation of Euro clearing within continental Europe. It includes detailed tables of the estimated impacts of Brexit within the financial services market, and an assessment of the attractiveness of continental financial centres. 

Following are some of the key findings of our Brexit study:

The latest Brexit developments will cause several core issues for the UK, positive as well as negative. Indeed, once the UK will have left the EU, it will be able to deregulate its financial market in accordance with London’s history and traditions. However, the macroeconomic impacts (including a lower growth for the UK, loss of passporting rights, talent exodus, loss of Euro clearing) could quite substantially damage the UK’s economy in terms of profit and employment. 

London will continue to be one of the leading financial centres post-Brexit despite the relocation of a number of banking activities within the European continent. Depending on the severity of Brexit, the decrease in revenue and FTEs for the whole UK financial ecosystem could amount to 15 - 25%. Other European financial centres such as Frankfurt, Paris, Dublin and Luxembourg will be in the strongest position to benefit from these post-Brexit relocations. 

Of the financial ecosystem actors, the CIB actor will probably be the most impacted due to its international outlook. The CIB market will become fragmented; and banks will have to invest additional capital into new EU units. Banks are expected to experience both a decrease in revenues and ROE as well as a rise in costs (around GBP 10 to 15bn structural costs) due to the necessary duplication of services in both new EU entities and London. 
In the event of a hard Brexit, we expect that the UK CIB actor revenue and FTEs will decrease by 20-30%.

Eurogroup Consulting, in cooperation with the Institut Louis Bachelier, has compiled this information with the aim of clarifying the post-Brexit European financial landscape, still uncertain given the ongoing negotiation process between Brussels and London.

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