Interview with Peter Smith (Industry Consultant & Principal at FinTechReguLab)
The ability to watch the clouds of Brexit roll in over the horizon with a clear head and a keen eye is something of a novelty in these polarised times but as TFT quizzed Peter Smith, we sensed that we were in the presence of a uncommonly phlegmatic mind…
Which areas of finance do you feel will be most adversely affected by Brexit?
While the UK has a long history as a leading global financial centre, and as Europe’s financial hub, our continued success is not guaranteed. Our reputation for strong regulation, and governance, deep and robust capital markets and excellence in legal services makes us the natural financial centre in Europe. But despite these hard earned advantages, any disruption to our ability to trade puts this at risk to the detriment of both the UK and Europe.
We know markets take a long time to move elsewhere, but alongside the risks associated with Brexit, the large financial centres in Asia are rapidly emerging as genuine contenders to compete with us and New York.
In the past we have remained competitive because we have innovated and adapted to change. The emergence in the 1950s of the Eurodollar market in London is a good example of this. That market, centred in London, is now the biggest source of global funding. Since then we have had Big Bang, the dot-com bubble and the recent financial crisis, from which we have emerged stronger and better capitalised. Now, with Brexit, we face another major challenge. For the last two years, our industry has been focused on continuity of service to our customers and clients. We have worked closely with government and regulators to achieve this.
Whatever the outcome of Brexit there are four things this industry and the wider economy will need to succeed – investment, infrastructure spend, skills and innovation, these could be the most adversely affected.
When asked about the UK’s Brexit readiness, Smith was similarly measured in his assessment;
There is uncertainty amongst the number of Industry think tanks & workgroups I am involved in, which are all either UK Financial Services or the Fintech ecosystem.
If the UK failed to secure a deal this would have serious implications for London’s economy, which relies heavily on frictionless access to the EU market. Real GVA in London could be 6% lower by 2034 in a no deal scenario compared with the UK’s current trading relationship. This could amount to an annual loss of output worth £40 billion by 2034 (in today’s prices), nearly five times annual public spending on London’s transport network and 13 times annual public spending on policing in the capital.
The service sectors are very important to London, and many of the capital’s services businesses are particularly concerned about increases in non-tariff barriers arising from a no deal scenario, such as the loss of passporting in financial services and mutual recognition of qualifications for professional services, which helps lawyers and accountants for example to supply their services to other centres.
Barriers to trade with the EU in a no deal scenario would weaken the capital’s competitiveness, especially in services, which account for roughly 58% of London’s exports, 37% of which go to the EU.
Financial Services and therefore fintech’s rely on simple access to the EU to deliver important products and services to EU clients and customers, from pensions to insurance. An increase in trade barriers to the EU arising from the loss of passporting, restrictions on temporary travel for business purposes and restrictions on the exchange of personal data are particular concerns to the financial sector. In a no deal scenario the sector’s national GVA is projected to be roughly 9% lower by 2034 than it would be if the UK benefited from the same trading relationship as today.
Finally, are there any provisions which businesses have been unable to make due to the ever changing nature of negotiations?
The mood music is saying that most businesses lacked the information and clarity they need to navigate their forward course heading in to what could be the biggest change for them in a generation.
There is a very real risk that a lack of clear, actionable information from government will leave firms, their people and their communities in an impossible position. Even those companies trying their hardest to get ready are still in the dark on important matters from contracts through to customs. Many others, who took the decision to wait for the political process to conclude before acting, would face sudden and costly adjustments if a deal is not reached.
The British Chamber Commerce (BCC) is particularly concerned over potential escalating costs from export tariffs, but also retaliatory measures from the UK on its EU imports, with members telling the body they would like to see an official information hub where information about tariffs, duties and trade agreements for different countries are stored.
Whilst Smith appears ready to meet with triumph and disaster, and treat those two impostors just the same, it remains unclear whether the rest of the UK’s financial sector is as well prepared…