Financial services, the EU, and Brexit: an uncertain future for the city?

The financial services industry is of central importance to the UK economy. It represents some 7% of GDP. It also generates major exports for the UK - in the region of one-third of UK financial services are exported to the EU. News reports in the immediate aftermath of the referendum result included the sharp drop in banking stocks; the overtures being made to attract UK financial business away from the City to other EU centres; and plans by leading financial institutions to move some operations away from the City. Vivid illustrations all of the importance of the Brexit vote for the City and the UK financial services industry. The financial services sector is one of the most heavily regulated sectors of the modern economy, reflecting the need to protect the public interest in a strong and stable financial sector. The EU has, up to now, provided the framework within which UK regulation of the financial sector has been designed, applied, and supervised. The nature of the UK’s relationship with the EU following its exit from the EU has yet to be determined. But the consequences of the extraction of the UK from EU financial governance are likely to be disruptive in nature and long term in duration. This short note highlights some of the many implications from a regulatory perspective.