UK: Brexit And Financial Services - Beyond The M25

Last Updated: 7 December 2017
Article by Richard Bell

There is much debate around what impact Brexit will have on London as the leading international financial centre, but about half of the industry's gross value is actually generated outside the M25. As Deloitte's managing partner for regional markets and the newly appointed TheCityUK Chair for Greater Manchester, I am delighted to have a role in championing the in the North West and contributing to its long-term success.

Whilst Brexit is one of the most pressing issues for the industry as a whole, there are a number of other important issues to consider at a regional level, such as continuing to attract and retain both high and lower skilled workers, UK economic growth and devolution. I recently spoke to TheCityUK Chief Executive Officer, Miles Celic, to get his views on the industry outside of London and the impact of Brexit.

Miles, according to TheCityUK's report 'Enabling growth across the UK' published earlier this year, two thirds of the 2.2 million jobs in the financial and related professional services industry are actually based outside of London. For many people this is a surprising statistic, why do you think that is?

When people think of financial and related professional services in the UK, they tend to think of London — arguably the world's most important financial centre. It is an unintended, but inevitable consequence of this success that the remarkable stories of Britain's other important financial centres sometimes fall to a second level. But as the UK begins the process of leaving the European Union, it is essential that these stories are brought to the fore to protect and grow these vital parts of the UK economy.

Leeds is the UK's second largest financial centre - with world class mortgage, corporate and retail finance, insurance and stockbroking capabilities. Edinburgh, depending on how it is measured, is the fifth or sixth largest asset management centre in Europe. Manchester is a major legal services hub. Bristol has an impressive and rapidly expanding fintech sector. Birmingham, Belfast, Cardiff and a whole host of other cities right across the country — together with London — make up an industry that generates more than £176 billion for the UK economy.

The statistics in our 'Enabling growth across the UK' report lay to rest the popular misconception that only low value, back office jobs are located in the nations and regions of the UK. And in each and every one of these centres, clusters evolve that help generate high value and high income jobs in other sectors.

Take Bristol's fintech scene, which not only has important engagement with the university, but also has important links with the creative industries which is helping foster a dynamic local economy. Or Manchester, where the huge amount of commercial work carried out by the city's lawyers, generate the prosperity that makes the city not just an good place for business but an attractive place to live and work.

So, as the UK prepares to leave the EU, what do you think needs to be done to ensure the economic benefits of the industry are felt by the whole of the UK, and not just in London?

Much has already been said about the need for Britain to have in place a measured immigration policy. But continuing to attract the right talent will be more than about a agreeing a deal with Europe. About 40 per cent of the fintech companies in Silicon Valley were started by people born outside the United States and the two biggest sources of talent are China and India. That cannot be ignored.

It is also worth remembering that the UK is already very successful at developing talent. London attracts many workers from abroad and from within the UK, and often acts like a kind of "finishing school", in which professionals hone their skills during the first part of their careers before moving to Bristol, Birmingham, Manchester or Edinburgh – all which are recognised to offer good quality of life.

Another big challenge will be with so-called passporting rights — the right for a firm registered in one country of the EU to do business in any other state without needing further national regulatory approval. Here, UK and EU negotiators must broker a deal based on mutual market access and mutual regulatory recognition. Urgent agreement on transitional arrangements is now required – ideally a bridging period between the end of the Article 50 process and an adaptation period at the start of the new relationship will be required.

But there are many other things that may not capture the headlines that will play a vital role in securing the future of Britain's financial services beyond London.

Some are quite basic. For instance, the UK needs better data in order to understand the financial and related professional services ecosystem, with much more granular information on the nature of the industry. This more detailed understanding would help businesses, regional assemblies, city mayors and devolved governments direct skills and investment where they are going to have the biggest impact.

Similarly, there is also a need for a responsive policy, supervisory and regulatory environment to help at a local level. For instance, although the Financial Conduct Authority has an office in Edinburgh, more often than not, a fintech leader in Edinburgh will need to jump on the train to London in order to meet the relevant supervisor. There is a strong case for having small supervisory offices in individual cities to develop a close working relationship with smaller companies.

Foreign Direct Investment (FDI) is also crucially important for the industry. What can these regional hubs do to attract FDI?

The industry attracted over £10bn in FDI in 2015, which is around a third of total FDI in to the UK. London tends to be a gateway for this. But it is essential that this investment makes its way to the rest of the UK by ensuring there is the right talent, plus the necessary physical and digital infrastructure. The UK's cities, nations and regions must continue to make a clear "invest-ability case" so that projects can move forward quickly and with the right planning, regulatory and supervisory support in place. Brexit offers an opportunity to rethink how this might best be achieved.

The prize is great. This is not about London doing worse so that Bristol or Edinburgh can do better. In an ideal world, London would be competing with New York and with the big Asian financial centres, while Edinburgh, Birmingham, Manchester, Bristol and others would be vying with other European cities. Post Brexit, the UK-based financial and related professional services will need to clearly articulate its successes — not just in Westminster, but with diplomatic and international business communities so that the message is clear in Brussels and further afield.

To conclude, do you have any final thoughts on the continued success of the industry in the regions?

Talent and capital must continue to flow freely across the whole of the UK and beyond, and government, the regulators and business must work together to build on the global success story of the UK-based financial and related professional services industy.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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