Brexit could cause the UK to lose around 35,000–40,000 jobs to the European Union in wholesale banking alone, according to a briefing note from the Oliver Wyman consultancy. This is a near tripling of its original baseline estimate of a year ago.
At that time, working with TheCityUK, Oliver Wyman projected the loss could be 12,000-17,000. The movement of jobs from the UK could ultimately be greater than thought a year ago, say the authors, headed by partner Mark Austen.
Management teams may find commercial reasons to relocate more activity to the EU over time. This could be to encourage collaboration among salespeople, traders, and risk managers while maintaining close proximity to clients.
Broader policy questions
More fundamentally, they argue, the EU faces a number of broader policy questions about the future structure of the euro financial system and whether elements of it, such as clearing, can continue to be provided from London.
The authors note that the European Central Bank is seeking tougher banking supervision across the Eurozone as part of their ongoing work to strengthen the financial system. This means new requirements for the operations of multinational banks.
Such banks need to show that they
- Are economically self-sufficient
- Are resolvable
- Have strong local control and governance
It may also mean booking and risk management has to take place locally, raising questions over the use of back-to-back booking. These pressures are likely to lead wholesale banks to increase their presence inside the EU. Capital requirements could rise by up to 30%.
“Is it just more “Project Fear” fake news?” asked Bill Blain, head of capital markets and alternative assets at broker Mint Partners, in his regular Morning Porridge distributed to select clients and other avid readers.
Morgan seeks reassurance
Separately, UK Treasury Committee chair Nicky Morgan reports that she has written to Sam Woods, CEO of the Prudential Regulation Authority (PRA). Mrs Morgan said the cliff edge facing businesses in April 2019 is a cause for concern, particularly in financial services.
“Based on the information the PRA has collected, I have asked Sam Woods about how banks and insurers will respond as the Brexit deadline approaches, and the key risks of a ‘no deal’ scenario,” she says.
“I have also asked Mr Woods for his views on the desirability and design of a transitional arrangement with the EU, to provide more time to negotiate and prepare for a new UK-EU economic relationship.
“Getting these arrangements right will be crucial for ensuring that the City retains its pre-eminence as a global financial centre, and to protect the economy and jobs as the UK leaves the EU,” she argues.
A spokesperson for the PRA confirmed that Sam Woods will reply by 2 August as requested. It will be up to the Treasury Committee to decide whether and when to publish the details contained in the response.
Bank of England Governor Mark Carney has already previously advised the Treasury select committee formerly headed by Andrew Tyrie (who stood down from Parliament at the June general election) that a reasonable transitional period would be highly desirable.