In the days after the EU referendum, many financial services firms began to ready themselves for a worst-case Brexit scenario. Stories of job cuts, relocations to European hotspots, and other potential negative impacts on the industry quickly dominated headlines. Yet, as 2018 gets underway, a more nuanced picture has begun to emerge.
RSM’s Brexit Monitor reveals widespread concerns about the short-term impact of Brexit, with decision makers expecting it to have a negative effect on their business prospects over the next two years. Sentiment declined between August and December from 109 to just 87 on a scale of 0 to 200 (where 0 represents a strong negative effect, 100 no effect and 200 a strong positive effect).
Yet financial firms are more confident that they will weather the storm in the long term, eventually emerging relatively unscathed. When decision makers were asked about the impact of Brexit on their five-year business outlook, they had a more positive attitude, standing at 108.
What is fuelling this longer-term optimism? The industry has clearly been through a period of immense change. Over the past decade, new regulations have appeared with unrelenting regularity. Yet firms have stayed proactive. They adapted and forged forward. Against this backdrop, many see Brexit as just another change to get on and deal with.
Europe and beyond
Early planning will be key to weathering volatility over the short to medium-term. Many are already taking steps to prepare. Those that rely on a frictionless relationship with the EU are setting up branches and subsidiaries on the continent. The nature of their operations means they cannot afford to allow Brexit to impede business in Europe.
Firms that don’t rely on EU trade, however, may be able to take a more restrained stance. We’re seeing many smaller firms explore their options, carry out feasibility studies and develop contingency plans, including looking at other markets. But they are planning to delay expenditure until they know more – a sensible approach given the resource drain a geographic restructure often creates.
Yet safeguarding a future in Europe is just one side of the equation. If a worst-case Brexit scenario does materialise, there will likely be a movement into other favourable locations further afield. In fact, RSM research shows 38 per cent of firms have already expanded or are looking to expand into non-EU markets.
Those that get their plans in order early will be the most likely to benefit from first-mover advantage if a hard Brexit occurs. Completing due diligence on the talent pools and tax and regulatory structures in non-EU locations, and talking to local contacts, will help you understand where the biggest opportunities rest.
With the UK financial services sector so reliant on overseas talent, it’s critical that firms take the right steps to secure a future-fit workforce. EU workers in the UK are naturally questioning their future. The smartest firms will be making the right noises to keep them on board. Employees will be in significant demand in 2018. Take action now, and you’ll be best protected as the fight for the brightest talent heats up in the year ahead.