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What does Brexit mean for the future of Global Industry?
Mike about Money | Brexit
By Melanie Hudson
On June 23rd, 2016, the United Kingdom hosted a historic referendum, in which the citizens of Britain voted to leave the European Union. The decision sparked a global debate regarding not only the future of the European Union but also what Brexit means for international and industry relationships around the world.
One of the major topics currently being discussed regarding Brexit is the future of global finance, because the UK is currently one of the most power financial hubs in the world. Now that UK Prime Minister Theresa May has activated the official mechanism that will make it a reality - Article 50 of the Lisbon Treaty, what does the future hold for the financial industry?
There will be new trade agreements
While the UK is still part of the European Union, the Brexit process is now underway, which means renegotiating trade on a major scale. One EU member stated, “Great Britain currently benefits from various internal trade incentives, such as “Passporting."
Countries within the European Union can seamlessly trade with one another thanks to the Passporting process, and once the UK has officially left the EU, they will no longer reap the benefits of single market trade agreements. In the future, Equivalence may potentially replace Passporting, facilitating trade between the UK and the European Union.
Typically, these equivalence provisions require the EU Commission to assess whether the rules applied in a certain non-EU country are equivalent to those applied in the EU and verify that they have legally binding requirements
ensure effective supervision by authorities achieve the same results as the corresponding EU rules.
While it will be more difficult for the EU and the UK to trade in the future, there will be space for new partnerships to form. Currently, attention is being given to non-EU markets, with countries like the United States already showing interest in partnering with an independent United Kingdom.
One of the key points of the discussion regarding Brexit impact on the global financial sector is potential job loss, in addition to various plans for major companies to move their employees abroad. This would unfavorably affect certain professions based in the UK but could make room for other financial ecosystems to thrive.
Initially, most major banking institutions voted to remain in the UK and since a Brexit victory, they are now carving out their future plans. Goldman Sachs, one of the biggest financial institutions in the world, has already confirmed its plans focus the majority of new hiring within Europe, in addition to moving employees from London. While the outcome sounds bad, it’s doubtful that the UK, specifically London, will no longer be considered a major financial hub.
Potential talent loss is already being seen
When discussing the impact Brexit will have, a lot of focused is inevitably placed on trade and job loss, but it’s important not to overlook the impact the UK leaving the European Union will have on attracting talent. In fact, there has been concern that Brexit will cause “Brain Drain”, as many companies choose to set up shop in cities like London largely because of the diverse talent pool.
With the threat of more red tape being set up regarding visas and travel due to Brexit, there are fears that these obstacles will reduce the amount of international talent traveling to or relocating to London, and companies based in the UK’s capital are already facing recruitment issues. Other neighboring countries will potentially benefit from Britain's loss, in the sense that talent pools could be redistributed, giving other markets a chance to create new incentives to not only attract talent but to keep it.
The UK could lose out on future cross-border collaborations
Historically, the United Kingdom has been a top pick for foreign students studying in the European Union.
But, as Brexit is now underway there has been a major decline in the number of students applying to study in the UK, which has caused concern for the future of cross-border collaborations and could result in negative results for the economy in the future.
Offering incentives for foreign students to come and study is beneficial for any country, as they often contribute to the greatest education system not just culturally, but economically as well. In addition to bolstering education in the UK, students often choose to stay and work after they complete their studies, which has benefited businesses in Britain.
While a lot of the news around Brexit can certainly seem discouraging at times, it will take time for negotiations to be completed and deals to be ironed out. For now, the global economy is transitioning and, hopefully, the result will aim to promote cross-border trade and collaboration for a more progressive and prosperous global financial sector.
Melanie Hudson is financial valuation analyst. She has executed and advised on over $45 million in transactions across real estate, private equity, public equity, and venture capital. You may connect with her on Twitter.