By Kevin Butler | Managing Director Ireland and the United Kingdom | TMF Group
Businesses are deeply concerned about the UK’s future relationship with the EU, and with the Brexit deadline now fast-approaching, it’s time to start making contingency plans.
You know the breathless media hype about Brexit has gone into overdrive when the countdown clock makes an appearance. Businesses don’t need a constant reminder of the impending deadline. They are not finding much reason to celebrate. In fact they are deeply concerned about the UK’s future relationship with the EU. They also have short-term fears. We’re less than six months from the divorce, and nobody knows how it will happen.
In the face of uncertainty, some businesses are making contingency plans, but not enough of them. TMF Group’s Brexit snapshot report found that a concerning 77% of business leaders are taking an ‘as usual’ approach, waiting for the details of Brexit to be known before finalising their response plan. This is despite the fact that three quarters (74%) believe Brexit will have an impact on their business.
Of course some firms have taken action. AstraZeneca, one of the UK’s largest pharmaceutical companies, disclosed that it’s increasing its stockpile of drugs in both the UK and the EU by about 20 percent. It’s planning for the worst-case scenario that the UK leaves the EU without a trade agreement, and drugs made in the UK can’t be used in the EU because of the need for independent testing and licensing.
The impact on international businesses is also being felt. Panasonic announced that it would move its European headquarters from London to Amsterdam. The Japanese electronics company blamed Brexit for the shift, worried about tax issues and potential restrictions on the flow of people and goods between UK and the rest of the bloc.
Panasonic’s exit has increased speculation about jobs leaving London, as multinationals consider their UK and European strategies as separate strategies. Foreign companies in the UK are looking to ensure that they can do business across the bloc if Britain loses access to the European single market.
This is especially important in the financial services industry, as London is the financial capital of Europe. More than 1 million people are employed in the UK’s banking, insurance and financial markets industries. In 2017, the UK exported $73.9 billion of financial services and other business services, such as legal and accounting, to the EU.
Foreign banks have spent billions of dollars establishing the UK as their European headquarters because of its access to the EU market. They have a lot to lose if Brexit leads to the fragmenting of UK’s financial services industry.
The EU also has a lot to lose from the disruption of the financial system. Yet Brexit presents an opportunity for other European capitals to lure some of the financial operations and talent. Frankfurt, Paris, Amsterdam and Dublin are in contention for relocation of operations.
All of them are competing for Brexit’s spoils. The thing to keep in mind is that all four of them already have pre-existing specialties in financial services that will likely make all of them winners.
- Frankfurt is already an established major financial hub and is home to the European Central Bank and other regulatory institutions. Some Japanese banks have already said they will set up subsidiaries here.
- Paris has emerged as a financial trading hub. Over the summer Bank of America announced it would open a trading floor with room for 1,000 staff.
- Amsterdam’s fast data links will attract high-frequency trading firms and financial technology firms. Tradeweb, a US-based bonds and derivatives platform, chose the Dutch city for its electronic trading hub.
- Dublin is already home to asset managers and back-office operations. BofA and Barclays selected the Irish capital for its European base.
Financial institutions and other companies will consider other factors and seek wider opportunities around regulatory environment, political climate, legal system, language and availability of talent. The choice is not clear cut, given London’s dominance in financial services. It may come down to something more trivial like the availability of good schools for the banker’s children.
Despite all the talk of relocation, businesses aren’t rushing out to hire moving trucks. A Reuters survey of big financial firms in London found only 630 finance jobs have been shifted overseas.
Everyone, it appears, is waiting, hoping, for the rules of separation. It is however possible to wait for these details whilst at the same time taking action – to ensure operations are as Brexit-ready as they can be, and will continue uninterrupted.
The clock is ticking.
Find out how companies are preparing for Brexit on our 28 November webinar with Brexit Partners. Download your free copy of the report: Brexit snapshot: How prepared is your competition? Need help preparing for Brexit? Make an enquiry with us today.
A version of this article originally appeared on CFO.com
Compliments of TMF Group, a member of the EACCNY