Brexit : the impacts and challenges for the French Banking world?

October 15th, 2018

The government is currently working on new measures to be taken in the case the United Kingdom and the European Union would fail to reach an agreement. Hard Brexit? Soft Brexit? What are the impacts and challenges for the French banking world? How should banks organize themselves?

Brexit : where do we stand?

As a result of the referendum of June 23, 2016, Brexit has been validated by the British government: United Kingdom should leave European Union in March 2019 following a long process of negotiation with the 27 other EU members.

As United Kingdom is the first country to leave the treaty, negotiations are going very well: transitional period conditions, status of expatriates, free movement of persons, trade relations with the EU member countries … The answers have not yet been recorded so consequences remain difficult to measure for the moment. However, two scenarios seem to be emerging: a “hard Brexit”, a total breakdown with the EU and a “soft Brexit” with the aim of maintaining conditions of access to the EU single market as well as the free movement of persons (as defined by the Schengen area).

We will consider the impacts and challenges these two options could have on the banking sector.

Both Financial and purely administrative impacts

Today, the economic uncertainty around Brexit is a problem for banks and leads them to consider relocating from London, the leading global financial center in Europe.

Indeed, in the case of “hard Brexit”, the economic restrictions applied could end the British access to the EU single market. In this case, trade agreements will have to be established between the UK and each EU member country, more than likely implying a return of customs duties and trade controls. Consequently, a destabilized British economy would have impacts on UK banking activity and investment. Then, if the single market ends, The City would lose the “European financial passport” which today allows British financial institutions to sell their financial products throughout the European Union.

In addition, not only a British Pound drop is expected but we can also anticipate an increase in commissions and fees between British and European banks.

Brexit : enjeux et impacts

Another particularly impactful consequence for the Banks concerns human resources and the ability to attract a qualified and specialized workforce. If the government put in place strong administrative restrictions, the Bristish Banks may encounter a problem of skills transfer: United Kingdom would not remain as attractive in terms of employment, and particularly for workers coming from other European countries who might be tempted to return to EU countries. Beyond this issue of worker retention in London, banks will be dependent on the new migration policy decided in the United Kingdom and the decision to maintain or not the free movement of persons. Indeed, because of the scarcity of specialized finance profiles, English banks can often contract foreign profiles. Restricting the mobility of foreign citizens could therefore be extremely harmful.

What are the bank issues today?

First of all, banks will have to consider a new host city to face a potential “hard Brexit” and therefore strong financial and administrative restrictions. Paris seems to be a great option for this relocation because of the European Securities and Markets Authority presence, the potential establishment of the European Banking Authority and also because of the reforms on taxation and labor law promised by the Macron government. In addition, the attractivity of the French capital for start-ups and more generally for innovation, play in favor of this decision, as well as the recognized quality of French financial and IT academic education.
Frankfurt also seems to be a valid option and this city is positioned as the main host city competing with Paris.

Nevertheless, before taking any decision and in parallel of the city choice, Banks will have to lead an impact study regarding the migration of their projects and of their activities. Indeed, the costs of migration on this scale will have to be consistent with the decision to leave The City.

Finally, last but not least, Banks will have to take into account the compliance with the local regulations in force in the new city.

To be accompanied to prepare Brexit

Firstly, the impact study, then, secondly, the relocation process, the creation of new teams, the different migration projects… All these are issues that Banks will have to face. Consulting firms seem to bring a relevant solution in leading these new challenges. Using local resources would better anticipate the issues described above and cope with the consequences of a migration. Quanteam, pure-player in finance, supports its clients in their international business and IS projects with its offices in London, Paris, New York and Casablanca. Thanks to our targeted and qualified recruitment policy, we have the advantage of gathering some of the most experienced business and IS experts in the sector.

Quanteam has developed a Brexit offer dedicated to British Banks and Financial Institutions to assist them in their strategic transformation and the migration of their projects. Our presence in both Paris and London gives makes us an asset in Brexit-related transformation projects with the possibility of having our experts easily involved in both locations.