Impact of Brexit on Financial Firms

Financial Firms
On December 11th, parliament will make a decision on whether or not to accept Britain’s withdrawal agreement with the European Union. What are the ramifications for businesses, most specifically financial firms? From a PESTEL analysis perspective, it is important to note that financial firms ought to not only assess, but also analyze the relevant macro-environmental factors likely to impact the way they do business. Four factors will be taken into consideration in this discussion, with the context being the article; Financial Firms have Quietly Prepared for Brexit. There said factors are political, social, economic, and legal factors.
Political
This has got to do with the degree (and impact) of government intervention in the economy. In reference to Brexit, the Dec 11 parliamentary decision will impact financial firms and how they conduct business. Although an event of this nature ought to trigger uncertainty in the industry, the article argues that financial firms have been quietly preparing for Brexit. This has been made easy by three key factors that give the said firms an added advantage over other kinds of business, i.e. size, regulation, and fear. However, regulatory pressures are sure to be witnessed. For instance, as it has been pointed out in the article, “the  ECB (European Central Bank) is insisting that banks set up more than mere “empty shells”, in which business is booked with EU27 clients while the real business—and risk—stays in London, outside its purview.”
Economic
This is an amalgamation of all the factors that affect the profitability of firms and their viability in the long-term. The profitability of financial firms, particularly banks, is likely to experience a roller coaster of sorts going forward. This is particularly the case if the uncertainty over the future of the country’s economy persists and BOE is forced to revise interest rates downwards from the current 0.75%.
Social
This has got to do with the population’s attitudes, characteristics, and shared beliefs. Two of the social aspects that ought to be highlighted in this case are migration and access to higher education. With regard to immigration, the regional work migration could become more complex as a consequence of new laws. This would affect EU citizens who work or seek to work in the UK, and UK citizens who work or seek to work in the EU. When it comes to education, UK funding to European universities will most likely be withdrawn – effectively affecting scholarships. This could mean a shortage of manpower in the coming years with the effect on financial firms being significant at a time that most institutions are setting up operations in other EU centers. For instance, according to the article, in addition to numerous institutions pitching camp in destinations such as Frankfurt, “Brexit is prompting big banks to put more sales people, especially, in several cities, so that they will be closer to their corporate clients, reversing a 20-year trend towards concentration in London.”
Legal
Here, of importance in the regulatory regime and how if impacts operations of business entities. On this front, we have a complex regulatory picture. In finance, and most particularly banking, global regulators have significant sway in the setting up of the relevant rules. However, some concerns require localized legislative attention. There would be need for a number of items to be enshrined in the law of UK if the country were to exit the EU. The relevance of ensuring uniformity cannot be overstated. There is need to ensure that financial firms with regional operations do not encounter regulatory demands that effectively collapse their business models. This is more so the case given that as the article points out, “in future years both supervisors and clients may demand that banks employ more people inside the EU.”





















References
The Economist (2018). Financial Firms have Quietly Prepared for Brexit: The Benefits of Scale, Regulation and Fear. Retrieved from https://www.economist.com/finance-and-economics/2018/12/01/financial-firms-have-quietly-prepared-for-brexit