Speculation is rife about how Brexit will affect the investment sector after the deal has been finalised, and obviously at this stage no scenario is set in stone. However, certain possible outcomes are currently under debate as the type of deal that is finally agreed will obviously have repercussions for the financial investment industry and here we look at what this may mean. Depending on the results, not only could this affect financial investment but the industry as a whole as it has an estimated 1 million people or more who work in the sector. The Institute for Government produces useful information on the government and the industry’s position on possible post-Brexit fallout.
One outcome is that it will not have some of the adverse effects predicted due to UK and investment fund managers already having accounts and undertakings in European countries such as Luxembourg, Ireland and others. In the wake of the current uncertainty it is envisaged that other investments will be placed abroad as a possible safeguard against worst case scenarios.
Change in Regulations
However, one of the more significant issues is the new rules that may apply to investment firms and bankers under European regulations, particularly concerning ones that allow different types of investment firms to delegate to a UK investment manager.
Other financial experts argue that UK financial regulatory standards are already very complex and of a high standard, and this would lessen the impact of the EU impositions as the system is already fairly robust compared to some countries.
Opinion is divided on how quickly or severely the Brexit deal will affect the City, and due to its infrastructure and excellent competitive advantage this may not have any early impact. However, in time it could be that competing financial centres in Europe may take precedence and attract more business and investment. Countries such as France and some surrounding areas are already the focus of some relocation of investment and financial headquarters, so the UK will have to pre-empt this by strengthening and reinforcing areas of strength.
Hard or Soft Brexit?
Obviously one of the key talking points is whether the deal will consist of what is known as a ‘hard’ or ‘soft’ Brexit. In a hard Brexit scenario, the effects will be more severe as the UK will leave the single market and have to forge new deals with countries in Europe, possibly facing a loss of faith by potential business partners. In addition, the UK would also have an increase of 10% tariffs on services and goods as well as more comprehensive rules to follow. In a softer approach, Britain would be more aligned to the EU and the customs union meaning a less aggressive impact on trade and finances. Moneyfarm have an informative and detailed blog about the possible repercussions of Brexit on the UK in terms of financial investments.