A Perspective: How is UK’s Financial Sector Recovery Going?

Posted by Maria Katrina dela Cruz

Nov 12, 2021 2:09:00 PM

Fluctuating levels of economic stress have stalled the recovery of the UK’s financial sector over the past years, but with confidence from the rising recuperation, there’s a hope of sustained growth as we move along to 2022. 

The City and the financial sector outlook for 2022
Disruptions, such as Brexit, and black swan events like the pandemic, created a global standstill that reverberated in every aspect of financial services. On the upside, all these hurdles primed stakeholders, business leaders, and CFOs to rise above the situation and ensure the industry overcomes the snag. This is evident as a rise in discretionary spending and reopening of markets is reflected in the performance dynamics of various verticals.

However, the recovery has been oscillating through the year. Where does UK’s financial sector stand in terms of a steadier recovery?

The UK financial sector post-Brexit 

Two years after the UK finalised its divorce from the EU, regulations have clearly been overhauled. Come 2021 January, businesses and organisations hollered as there were no concrete plans on how to go about after 31 December 2020. 

Read Next: Rethinking Financial Reporting in the UK amid Regulatory Changes

This transition took a major toll in the UK’s financial sector, which didn’t come as a surprise [notably] since it was left out of the talks between the two parties. Rife further surrounded the then chaotic Brexit environment — resulting in a bleak market. 

End of Passporting 

Changes became more pronounced when privileges such as passporting ended. The financial services are the benefactor of the UK when it comes to trading with the EU, but without passporting, they cannot freely trade this service to the rest of the bloc. The years-old practice allows them to market their goods and service to the rest of the European constituent countries without the troubles of regulatory approval or license obtention. 

Because of the end of passporting, the UK is waiting for equivalence decisions to be made albeit the EU is staunch in the drawn-out deals of Brexit. 

Changing regulatory compliance 

Brexit also stands as a root cause of yet another bottleneck in the financial service centre of the UK: the regulatory changes in the financial services industry this 2021.

Aside from the now extensive import-export terms between the two, ceasing UK’s former unfettered access to the bloc raised more bars for regulatory changes financial services industry in 2021. How so?

The UK ended over four decades of ties with Europe and its expansive relationships with other countries. This means all their trading connections with the former are nullified the moment they are no longer part of the single market. Renegotiation is their only way to make new deals with third-party states. What does this mean for financial services?

The challenge of clinching 40-year old regulations with the European market lies ahead. Discarding their previous links to the EU, the UK faces a long road of uncertainty when it comes to financial regulations unless they manage to strike a deal. Not to mention that the British government is proposing to create their own set of financial regulations to repeal the European guidelines that are no longer applicable to them, UK-based firms and organisations remain to tread down an obscure path. Without an immediate course of action, there’s also a risk that financial firms in the City might transfer to the rising financial hubs of Europe which are Paris, Frankfurt, Amsterdam or Dublin.

Is London still the World’s Premiere Finance hub?

EU is not playing ball when it stood firm in not giving the United Kingdom a leeway in negotiating within its jurisdiction. And while that’s true, the UK remains steadfast in retaining London’s reputation as the World’s Premier Financial Hub. 

This is a massive blow for Great Britain. In the early quarter of 2021, the export of financial services to the EU dented the UK’s banking system by 10%. A big percentage of jobs and talent were reportedly transferred to the EU as well, to earmark their access to the European market should no equivalency decision be implemented. 

London’s bigger role after Brexit

After freeing itself from the regulatory controls of Brussels, the City is confident in carving its own path towards prosperity—after all, they are a global market. London manages various currencies and can extend its depth beyond the existing reach of the European continent.

Without further constraints to keep them from importing their financial services, the UK is expected to reestablish its name as a leading financial hub of the world. The British government currently considers forming economic ties with other robust financial markets in both Asia (China) and the USA (New York).

What does the future look like for UK’s financial industry?

ESG matters are on top of the concerns among the financial industry in the UK nowadays, alongside rapid digitalisation and compliance with regulatory updates. 

Brexit and the pandemic, on the other hand, remain as we venture to 2022. There are still no definitive ways to gauge how these two will influence the financial services industry. Their fluctuating impact draws the attention of regulators and CFOs, resulting in more innovative approaches from corporations and organisations. 

 

UK’s financial sector recovery is hinged on the resilience of the UK as a global financial hub. With an agile and dynamic solution to address any existing constraints, the United Kingdom’s overall economic condition will soar towards a more stable gear onwards.

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