Summative 1

Course

Instructor

Institution

City, State

Date
 Summative 2

Table of Contents
Introduction.......................................................................................................................................................................... 2

What is Brexit: How Does Brexit Affect UK financial Market?...........................................................................................2

Economic Principles Affecting UK Financial Sector After Brexit.............................................................................................5

Economic effects on the city of London............................................................................................................................5

Implications for trade across borders................................................................................................................................6

Regulatory and Economic Implications of Brexit on Sustainability of UK Financial services..................................................6

Conclusion........................................................................................................................................................................... 10

Management Recommendations to Reduce Adverse No Deal Effects of Brexit..................................................................11

References.......................................................................................................................................................................... 12

Introduction

What is Brexit: How Does Brexit Affect UK financial Market?

"Brexit" stands for "British Exit." It is a brief way to suggest that the United Kingdom (UK) is exiting

the European Union (EU). This word was derived from the moment that the Greeks left the EU, which at the
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time was called Grexit. David Cameron, whoa was the Prime Minister of the UK, announced a vote that Britain

should stay in the European Union or not. The side that garners more than 50% of the votes will prevail, and

that opinion will be used for every decision (Cressey, 2016). The text of the referendum read: 'Will the United

Kingdom remain a member of the European Union or exit the E?' The European Union is an alliance, political

and financial, among 28 countries that nurtured the concept of economic integration after the Second World

War, i.e. EU countries would trade together and not wage war between them. The EU has now grown into a

single economy, using a single currency 'euro' and meets a collection of laws laid down by its own Parliament.

The United Kingdom voted to join the EU in 1975.

The vote washeld after pressure placed on the Prime Minister to do something, which he originally

opposed but decided later. Citizens and leaders (UK Independence Party, several Conservative MPs) believe

that the EU has improved over the last 40 years. Most countries have entered the EU before then, and they say

that the body has expanded its influence to more areas of everyday life. They still believe that the EU has kept

Britain back and that, as a result, certain laws are put on companies. The nation spends billions of pounds as

service charges annually, and the profit they get is much smaller (Sowels, 2017). One of the EU's values is that

Member States do not require a visa to travel and reside in another EU state, because citizens and policymakers

want to completely reclaim control of their borders.

The UK financial segment is the biggest financial sector in the world. Brexit will render the scaling back

of the UK financial sector unavoidable. Approximately 250 financial institutions operate in the London finance

sector and have single market access within the framework of EU membership. Nearly 10% of UK GDP stems

from this industry; it contributes about 12% to the tax receipts from the Treasury (Bulmer & Ouaglia, 2018).

This industry is the world's largest exporter of wholesale financial services, employs a significant proportion of

individuals all around the world and thus contribute significantly to supplementary jobs.

If the UK leaves the EU, the banking sector will forfeit its single market access. Big and large banks will

switch from the UK to retain links to the former euro markets. Many U.S. banks are now in the process of
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creating contingency arrangements to migrate to Dublin in the event of Brexit. It would erase the position of the

UK as the main financial centre in the eurozone's financial sector (Cressey, 2016). Owing to this, the

government will suffer financially. Significant rights will also be withdrawn, such as the sale of capital and

commodities which are duty-free in the EU will be lost as a result of the Brexit.

If this is the case, Britain will be viewed as a 'third nation' by the EU, i.e. a country outside the EU, and

it is a law that if any country wishes to enter EU markets, it must first establish oversight and oversight of the

financial sector equal to that of the European Union. It would then impose the pressure of EU legislation on

Britain if it wishes to negotiate with its largest trading partner and the UK has no power to suggest anything

about those requirements (Dayson, 2013).There is a privilege referred to as 'passporting,' whereby any

organization founded in any state of the European Economic Region has the provision to provide cross-border

operations and may establish branches in other EEA economies. his right makes a major contribution to

London's attractiveness as a global financial centre as the scale of the EU's financial market is very high. Brexit

would cause the loss of the freedom to a permit for the United Kingdom and a drop in economic exports. per

cent of UK financial services exports are paid for by the EU and the UK will experience a significant loss in

terms of these exports.

The study on the Brexit financial market concluded that the financial institutions of the United Kingdom

and insurance firms are more vulnerable to Brexit because they have a large current account surplus with the

European Union. The UK will forfeit the right to vote in EU decisions and, as a result, the obstacles to entry

will be raised in compliance with new EU legislation that will not be regulated by the UK. The finance sector of

the United Kingdom is a heavily regulated business and, in particular, the legislation comes from Brussels. Red

Tape will constrain the United Kingdom if Brexit happens (Belke & Ptok, 2018). If the United Kingdom wants

to continue trading with the other European union member States, it'll have to abide with regulations and the

United Kingdom will no longer be in a position to bargain with the EU, control or contest such regulations. In

this term paper the impact of Brexit on financial and how these effects can be managed will be discussed.
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Economic Principles Affecting UK Financial Sector After Brexit

The financial industry is of vital significance to the UK economy, whereas the continued improvement

of the City as the main financial services center for Europe is a key theme in the 'Brexit' debate (Cressey, 2016).

In order to determine how it could impact the regulatory environment, the economic fortunes of the sector and

the consequences for cross-border trade, we have looked at the positives and negatives of 'Brexit' from three

different perspectives:

The Effect on Regulation

There's a stringent regulatory scenario. Global regulators set many financial and banking regulations,

though it could be argued in some areas that UK regulatory requirements are stricter than any of those set by the

EU, indicating that any immediate effect could be minimal. In comparison, a 'Brexit' would decrease overall

liquidity risk as divergent responses from UK and EU regulators can be met in any crisis. Across over 40 years

of legislation not officially embodied in UK law, it may also pose a contentious legislative obstacle (Dayson,

2013). In 'Brexit' talks, a swift solution to the continued passporting procedures between both the UK and the

common market would be a major concern. A successful outcome is significantly essential to the willingness of

UK-based companies to expand banking services to the EU and may have an implication on where to find the

best position for investment developments by international organisations. Whichever the result, it is likely that

there will be a growing a need abide with current EU legislation in order to keep conducting business all around

the EU (Drea et al., 2015). Evidently, even when the United Kingdom were to leave, it is likely that companies

wishing to conduct business in the EU will face increasing legal requirements and will still be required, in all

possibility, to conform with MIFID II rules once they are implemented.

Economic effects on the city of London

It can be speculated that 'Brexit' is unlikely to affect the City in the immediate future as it holds

substantial comparative edge and a highly integrated capability with support programs network that would be

impossible to detach or implement anywhere rapidly. Over time, however, opposing European financial
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institutions can intensify attempts to draw essential Euro-related investments and facilities, arguing that they are

best controlled under EU regulation from within the Eurozone. After losing the security of the European Court

of Justice, the UK may find it more difficult to withstand these attacks (Bulmer & Ouaglia, 2018). A downturn

in EU creativity which is currently coming to work in United Kingdom Banking and finance may also be one

consequence that can be felt immediately. A visa and work permit requirement may act as a barrier which might

undermine the UK, while reinforcing other far more accommodating financial investments.

Implications for trade across borders

The possible loss of passport rights for UK-based businesses seeking to export services to the EU is one

of the greatest identifiable threats to the industry. By functioning through franchises without passport privileges,

companies may follow the Swiss banking system. Even within EU, many companies have already logistics or

retail outlets, such as Luxembourg or Edinburgh (Belke & Ptok, 2018). Such exploit advantage of the available

experience and knowledge or deal with perceived restrictions on trade in facilities, like tax, inside the Common

Market. Numerous enterprises would want to re-determine their environment when all their cross-border

transactions are expected, considering the higher complexity normally corresponds with increased premiums.

Even after the possible alternatives, some forecasts suggest that 'Brexit' would still see a significant decrease in

investment banking exports and imports (Adler-Nissen et al., 2017). Over the years ahead, collaborative

relationships with evolving capital markets, such as Singapore And hong Kong, by which the Uk has substantial

cultural and historical relations, could provide an avenue to substitute for any potential liabilities.

Regulatory and Economic Implications of Brexit on Sustainability of UK Financial services

It would impact a wide range of financial markets of the potential partnership between the United

Kingdom and the EU. Corresponding financial and stock market activities include, but are not limited to,

deposit-taking, leasing, payment services, derivatives, foreign exchange and equity services, as well as

insurance services. Financial services regulations also apply to the oversight and control of business

infrastructure (Dayson, 2013). A variety of primary explanations can illustrate the consequences of a rough
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Rapkay. An summary of the additional EU regulations and the effects of Seveso on the corresponding facilities

is explained.

Financial service in the European Union are largely governed by CRD and the CRR2. These regulations

allow lending institutions to provide banking services in the EU and to establish outlets without specific

permission for every Member Country. Thus, CRD IV/CRR issues EU passports for banking companies, such

as bank accounts and loans, or other products offered to the clients. However, these EU passports will cease to

exist, and CRD IV/CRR will not have a third-country banking service regime either (Karet, 2016). As a result,

banks need to move all EU27 companies to a current or newly formed EU branch. This also involves moving

money, workers and equipment to this place and registering for EU approvals.

Under the MiFID II and the MiFIR3, companies may establish themselves freely within the EU and sell

cross-border services to capital markets such as securities and derivatives without additional national

authorization. This also includes all auxiliary resources essential for the provision of shares and derivatives. In

addition, MiFID II/MiFIR provides an EU-wide authorisation for the provision of data providers as well as for

trading venues. MiFID II also allows for a workaround based on the equivalence regime for third countries.

Within this system, the EU-wide availability of MiFID-regulated services relies only on the application of the

notification process (third-country entity passport). However, this applies only to very small areas; e.g. to the

offering of financial services to skilled customers. No facilities can be provided to retailers and an a few to

corporate clients. It is far from constituting a robust EU passport scheme (Sowels, 2017). As a result, much of

the EU27 market operations have to be moved to the EU in the event of a "hard Brexit."

Insurance sector is subject to the requirements of Solvency Directive, which allows main indemninity

and reinsurance firms to market their goods and services across the EU. In addition, this law gives them the

chance of authorisation and regulation of the home country (Dayson, 2013). As a result, subsidiaries of EU

insurers forfeit this right and become subject to UK oversight. Solvency II also allows for an equivalence

regime, but exclusively for reinsurance undertakings. Main insurance cannot however be sold around
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boundaries. Finally, the oversight and oversight of financial market assets, i.e. exchanges and associated trading

practices, would also have a major effect on financial markets in future EU-UK relations. The (EMIR)5 is at the

core of the applicable European legislation. In fact, the most important points are the selling and clearing of

derivatives.

Brexit will impact on the location, expense and liquidity of retail banking in the United Kingdom if

London's dominant advantage is eroded. Major banks in Europe have large operations in London, and it would

be expensive to move. London dominates major commodity markets and is an international financial services

hub. This place is in jeopardy and could be shattered if a substantial number of European businesses move as a

result of the Seveso (Sowels, 2017). The danger of any essential sector, such as derivatives, will leave Europe

entirely. The beneficiaries in the EU are Paris, Frankfurt, Amsterdam and Dublin. But they do not have the

talent to recreate the benefits of the London economy overnight, including financial services and professional

workers, business infrastructure, etc. Company in Europe will be missed due to higher charges, inferior goods

and reduced liquidity. Organizations in Europe would find it uncomfortable and expensive to collect money in

London, which is currently one stop store. The balance of financial regulatory debates in Europe will change as

a result of the breeze. The United Kingdom wants to take a more interventionist stance and a risk-averse

approach to business control.

According to research, it is worth noting that UK's finance system and related advisory services

constitute an "eco-system". The implications of the Brexit could be experienced pretty widely than in direct

business with EU customers. the studyoffers a variety of quantitative predictions for soft and hard Brexit. In the

original case, in which the United Kingdom is separate from the European Economic Union but also has

passport rights and the equivalence of entry to the Single Market, the decline in activity will be modest

(Stockemer, 2019). The reduction in EU-related investment will be about-£2 billion (equal to roughly 2 percent

of total international and wholesale business). This decline in production will be met by employment reductions

of 3-4,000 and tax receipts of less than 500 million pounds a year. At the other side, if the United Kingdom's

alliance with the EU were to comply with the laws of the World Trade Organisation, 40-50 per cent of EU-
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related operations (£18-20 billion in earnings) will be at risk. This, in fact, will be followed by employment

reductions in the order of 31-35,000 and tax receipts of the order of around 5 billion.

Such projections are, large estimates, which are likely to change a great deal, depending on the

complexities of how the Brexit mechanism unfolds. Many other variables are likely to come into play. Some

are related to the issue of Brexit itself, such as the effect of new immigration controls and the acceptance

offered to expatriates and still want to serve in London. This is how the definition of the UK financial services

industry as a "eco-system" is relevant (Drea et al., 2015). (Drea et al., 2015). The interconnectivity of business

practices in finance and related advisory services like legal services, information technology, etc depict the

difficulty to quantify the exact impact of the loss of certain activities on the entire ecosystem.

On the other hand, it could be difficult to travel elsewhere in Europe with the density of the UK eco-

financial services system with a focus on London. Many European financial centers definitely fish for

businesses that might leave London. Dublin and Frankfurt are the chosen places likely to capitalize on Brexit. In

November 2016, Valérie Pécresse announced that the Ile-de-France region will be developing a one-stop shop

to assist businesses to migrate to France.

Greater Paris often profits from being the only other real metropolis in Europe and therefore an

incomparable center in the EU. But it is not as easy to move places in Europe only because there is nothing like

the skill and infrastructure concentration found in London in any other financial center in Europe. For example,

in October 2016, Jamie Dimon (JP Morgan's CEO) expressed the view that US banks should return work to

New York rather than move to other parts of Europe where the financial infrastructure of the banks is limited;

(Belke & Ptok, 2018). Mr Dimon also predicted that the chances of breaking up in the eurozone are greatly

increased by Brexit. This will of course make other EU centres, for foreign funding companies, far less

appealing.

Indeed, it is likely that any dislocation of finance that could be triggered by Brexit will occur as Europe's

banking sector is still struggling to recover from the 2007-2008 financial crisis and the European sovereign debt
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crisis at the beginning of the 2010s. For instance, the oldest bank in Europe, the Monte dei Paschi di Siena,

established in 1472, is constantly in the news with its ongoing problems. o is Deutsche Bank, that has been in

trouble since its huge revamp in ealy 2000s (Bulmer & Ouaglia, 2018). Big French financial institutions are

facing managerial challenges and are currently dependent on their investment banking operations to make

money, as large branch networks are costly to sustain. More broadly, all major European banks operate in

London, and the re-organization of their work to take account of Brexit would entail costs and the possible loss

of lucrative business.

Conclusion

The United Kingdom's banking market has been negatively impacted by the Brexit. The benefits of

leaving the EU are difficult to recognize. The United Kingdom argues that some of the new freedoms which

will be gained as a result of Brexit and that the framework of its activities will change against the global

community. But the argument is unreactive. Whatever talks the UK will have with the EU on the form of

agreements that will shape the UK's financial services (S&P, 2015). If the United Kingdom wishes to maintain

its entry to the EU single market, it will become a member of the EEA. Switzerland is entered into a bilateral

deal with the EU, which is also a choice for the United Kingdom. Alternative arrangements could be

implemented by the United Kingdom to mitigate the detrimental economic repercussions. Although the United

Kingdom is not in a position to negotiate the agreements effectively, it may experience undesirable

consequences that could not even be imaginable.

Throughout the run-up to a 'Brexit' referendum and even beyond, one projection that we have been

assured of making is of a consolidated of economic uncertainty. Companies must ensure that they are well

positioned to overcome any potential risk and also leverage on longer-term benefits ahead of competitors by

acknowledging their amount of vulnerability towards the most likely outcomes and placing good strategies in

place to manage them. For our position, this same Financial Services Division of Grant Thornton is well
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positioned to assist our customers with appropriate legislative, corporate planning and resource support

throughout 'Brexit'.

Management Recommendations to Reduce Adverse No Deal Effects of Brexit

An orderly exit from the European Union should be embraced by the UK. The transition deal should ensure that

the parties involved will continue to cooperate to their mutual advantage on different issues. Nevertheless,

measures to minimize the effect of a potential no-deal Brexit should also be strengthened by the EU. Since the

steps are unlikely to duplicate the benefits of becoming member of the Union, both sides would be cushioned

from adverse economic implications. As a potential agenda for negotiation between both the Uk and the Eu,

long-term options should also be considered. Temporary no-deal Brexit arrangements can include: entrance into

the EU without the need for a visa for limited periods given that this also extends to EU travelers to the United

Kingdom; UK airlines should be able to offer services to EU countries provided that EU companies are also

able to do so to the United Kingdom for seven months after departure; the validity of rail protection permissions

should also be applied to maintain the integrity of rail services between the United Kingdom and the United

Kingdom given that the United Kingdom would do the same; freight and bus and rail providers from the United

Kingdom should also be able to deliver services between the United Kingdom and the EU, provided that the

United Kingdom offers equal access to EU companies; EU citizens in the United Kingdom and UK citizens in

the EU should maintain welfare payments gained prior to withdrawal; UK scientists, scholars and farmers

should receive additional EU assistance.

References

Adler-Nissen, R., Galpin, C. and Rosamond, B., 2017. Performing Brexit: How a post-Brexit world is imagined

outside the United Kingdom. The British journal of politics and international relations, 19(3), pp.573-

591.
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https://journals.sagepub.com/doi/full/10.1177/1369148117711092

Belke, A. & Ptok, S., 2018. British-European trade relations and Brexit: an empirical analysis of the impact of

economic and financial uncertainty on exports. International Journal of Financial Studies, 6(3), p.73.

https://www.mdpi.com/2227-7072/6/3/73

Bulmer, S., & Quaglia, L. 2018. The politics and economics of Brexit. Taylor & Francis.

https://www.tandfonline.com/doi/full/10.1080/13501763.2018.1467957

Cressey, D., 2016. Academics across Europe join ‘Brexit’debate. Nature, 530(7588), p.15.

http://dx.doi.org/10.1038/530015a

Dayson, C., 2013. Understanding financial vulnerability in UK third sector organisations: methodological

considerations and applications for policy, practice and research. Voluntary Sector Review, 4(1), pp.19-

38.

http://dx.doi.org/10.1332/204080513x663796

Drea, E., Angelou, A. and Freudenstein, R., 2015. BREXIT In Focus: six ways it will fundamentally change the

EU.

http://dx.doi.org/10.1007/s12290-015-0370-6

Karet, I., 2016. Brexit–more downside than up.

http://dx.doi.org/10.1093/jiplp/jpv214

Sowels, N., 2017. Brexit and UK-based financial services. Revue Française De Civilisation Britannique.

French Journal of British Studies, 22(XXII-2).

https://journals.openedition.org/rfcb/1331

Stockemer, D., 2019. The Brexit negotiations: If anywhere, where are we heading?“It is

complicated”. European Political Science, 18(1), pp.112-116.

https://link.springer.com/article/10.1057/s41304-018-0157-8