Financial Services and the challenge of Brexit

By Zoë Stumpf.

Having just emerged—slowly—from the depths of the financial crisis, Brexit was arguably the last thing that the UK financial services industry needed. Eight years of dealing with onerous regulatory requirements and severe cost cutting–as well as the disruptive influence of digital and aggressive inroads by challenger banks–have taken their toll on the industry and left it in no need of this new challenge.

Preparations for Brexit are already proving to be a major drain on financial services companies, but perhaps the biggest issue is that the true shape and size of the challenge remains unknown. The initial hope was that passporting rights would be retained, thereby minimising the impact on the industry, but that looked much less likely in the context of a hard Brexit, which seemed to be the most likely option in the run-up to the recent general election. What Brexit may look like now, given the post-election magnification of what was already an uncertain picture, is, frankly, anyone’s guess. Recent announcements about EU draft legislation that could mean moving the lucrative euro clearing business out of London and keep it in the EU, once the UK leaves in 2019, is just the latest example of the degree of potential disruption that could be faced.

What is clear is that financial services organisations need to get on with preparing—and fast—for any and all eventualities. There’s no disputing that. The Brexit timetable is breathtakingly short, and financial institutions urgently need to work on reviewing and changing their pan-European business portfolios while identifying a strategy that hedges Brexit risk, creates strategic resilience, and positions them advantageously for the post-Brexit European financial services marketplace. This is a bit like trying to plan your moves in a multi-board chess game, when the fundamental board layout might be changing, you’re blindfolded, and you don’t know where your opponents’ pieces are.

All of this should be good news for consulting firms. The mere scale of the project management involved is way beyond the in-house capacity of the industry, and with preparations likely to need to cover the whole spectrum of activity—including changes to the structure of the business, location strategy, resource profile planning, contractual arrangements, and regulatory planning—it is likely that most institutions will be looking for external help.

Based on our research, it’s fair to say that there’s relatively little to differentiate between consulting firms’ financial services Brexit propositions at present. This may not matter. What will matter is having a sufficient number of consultants available with the necessary depth of specialist knowledge and expertise to deliver what’s needed to financial services clients under huge pressure to prepare themselves for any and all eventualities as quickly as possible. Consulting firms possessing depth of skills and cross-functional (and in many cases pan-European) expertise will be best placed to assist financial services organisations. The Big Four have a clear advantage here with their access to tax, restructuring, people, operations, and technology expertise under one roof. For other firms, success could lie in their ability to establish ecosystems that bring all those abilities together. And with the UK’s largest consulting market likely to be dominated by Brexit-related issues and their ripple effects for years to come, it’s clear that it’s worth investing to get this right. 

What is hugely and deliciously ironic, of course, is that this urgent and intense need for expert consulting help will doubtless mean a need to import brainpower and experience from across Europe—both to plot and execute Brexit strategies and to provide knowledge of local markets as financial services institutions consider moving their flagships to other European cities. Perhaps this isn't quite what UKIP had in mind for a post-Article 50 Britain. Be careful what you wish for, we say.