On 31 January 2020, the UK officially left the European Union. After years of deliberation following the 2016 Referendum, the country officially left the EU at 23:00 GMT

Speculation was rife: Would new trading opportunities with non-EU countries be able to replace our position in the European single market? Would European firms move their operations away from the UK, leaving thousands of Brits jobless? The concerns of the Remain campaign were dismissed as scaremongering, as the Leave campaign envisaged a brighter future for the UK, unshackled by restrictive EU laws.

As the four year anniversary of Brexit approaches, we're afforded a little more clarity over the actual impact of Brexit upon the UK's financial services industry. The experts at Anglo Scottish Finance have taken a look at which of the early Brexit predictions have proven to be accurate – and how the outlook is for the financial services sector going forward.

After Brexit, there were huge concerns over financial services firms leaving the UK, and leaving thousands of Brits jobless. In the immediate aftermath of Brexit, 44% of the largest financial services firms in the UK planned to move part of their operations (and/or staff) to the EU.

The story was the same for fintech companies – 37% of firms interviewed by researchers at Anglia Ruskin University planned to at least partially relocate in the event of a no-deal Brexit. A follow-up study in 2023 found that 84% of the firms that had planned to leave the UK followed through with their plans.

There have been encouraging signs, however, both for the businesses who stayed, and in terms of businesses now looking to return. In spite of these issues, financial services has remained a vital driver of the UK economy, and accounts for 50% of the UK's entire trade services surplus.

In December 2023, Dutch company Bunq, the second-largest neobank in the EU, announced plans to return to the UK having left the country after Brexit. During the same month, the UK and Switzerland announced a "first of its kind" financial services deal designed to ally the two banking centres closer together. It is thought that the deal would not have been possible while the UK was in the European Union.

So, though Brexit did cause an early exodus for some of the UK's top financial firms, the sector has remained strong, and London remains a lucrative destination for European firms plotting a return. Meanwhile, the new deal with Switzerland aims to facilitate better business between financial firms, indicating an improved outlook for business with one of Europe's top banking centres.

As elite firms announced plans to leave the country, the focus quickly shifted to UK jobs in the financial services sector and how they would be affected. Estimates predicted that 75,000 financial services jobs would move from the UK to the EU as a result of Brexit. In reality, though jobs were lost, these figures were dramatically inflated. Employment conditions for those working in financial services have been nowhere near as difficult as initially predicted. In 2022, the actual figure was estimated at about 7,000.

Heading into 2024, there have been concerns about Gen Z's top European finance talents leaving the UK in favour of Europe, where working conditions and the cost-of-living are thought to be more favourable. New regulatory policies are going some way to combat this in the financial sector. In October, the UK announced that it would remove the bonus cap it inherited from the EU, which dictated that variable pay cannot exceed 100% of fixed pay (or 200% with shareholder approval). This differentiates the UK from the rest of the EU, aligning it more closely with New York. Policies like this aim to ensure Britain – and London, in particular – remains a lucrative destination for top banking talent.

Financial services remain a vital part of the UK's international trade, and accounted for 19.1% of all UK services exports as of June 2022. At the time of the referendum, one of the key arguments presented for Brexit was the country's chance to become less reliant on EU trade and open up trading alliances with new countries. Many of those in 2016, particularly those that presented themselves as "Economists for Brexit," argued that leaving the EU would allow Britain to escape "growth shackling European policies".

Thanks to the pandemic, international trade performance has been skewed in the window between Brexit taking place and now. Between 2019 and 2022, the UK's GDP growth was lower than the OECD, G7 and EU27 average, indicating an overall slump from an international trade perspective.

Between 2018 and the year immediately after actually leaving the EU, the UK witnessed a significant drop in financial services exports from the UK to the EU. There was an 18% drop in exports of services to the EU. Trade to non-EU countries proved an inadequate replacement, rising by just 4%

However, new international trade agreements are opening new doors to international trade with new markets.

In July 2023 the UK joined the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a trade agreement including countries such as Australia and New Zealand, Mexico, Chile and Vietnam. In November 2023, talks began with South Korea over a new and improved trade deal. Financial services are the UK's second largest services export to Korea, and the sector would stand to benefit hugely in the event of strong trade terms being finalised. This deal will also see significant Korean investment into the UK, with investment in project finance, green infrastructure, investment banking and securities.

Until then, however, the general consensus is that Brexit has done little to strengthen Britain's trading position internationally, though Rishi Sunak is thought to be on the brink of a "landmark" multi-billion trade deal with India, which would represent Britain's biggest trade alliance since leaving the European single market.

Four years on from Brexit, the results suggest that the UK financial services sector has not been impacted as strongly as might have been suggested previously. The UK, and particularly London, remains a hotspot for fintech innovation, while new opportunities for international financial services firms and dedicated policies aimed at recruiting the strongest talent suggest the future outlook is becoming brighter.

"It is difficult to look at Brexit within a vacuum…"

comments Stuart Wilkie, Head of Commercial Finance at Anglo Scottish.

"…particularly given the seismic other events that have taken place between now and then. An unparalleled global pandemic enormously impacted the finances of every country in the world, while war in Ukraine and the subsequent inflationary crisis have made it harder for the pound's value to recover."

"Going forward, questions remain over the efficacy of the UK's new trade deals, and the real recruitment impact of policies such as the removal of the bonus cap are yet to be seen. Nevertheless, with fintech poised to play a key part in the UK's transition to net zero it's vital that the financial services sector has remained strong, and was not impacted as heavily as previously thought by Brexit."

https://www.angloscottishfinance.co.uk/commercial-finance/