Brexit certainty needed to boost finance industry

Rain Newton-Smith said firms needed certainty on what the UK is aiming for in Brexit negotiations to restore confidence in the industry.

She was speaking as a new report today shows that optimism in the financial services sector fell for the third consecutive quarter at the end of 2017, rounding off two years of continuous flat or worsening sentiment.

“Optimism in parts of the sector has been falling for the last two years, whilst firms are nearly unanimous in voicing their concern about the damaging impact of Brexit uncertainty and the need for the UK to remain a vibrant centre of FinTech and innovation,” she said.

“To restore some confidence, financial services firms absolutely must – no ifs, no buts – get as much certainty as possible on what the UK is aiming for in the Brexit negotiations, the opportunities of success and the consequences of failure.

“The never-ending burden of regulatory changes is slowly sucking the life out of financial services firms, and has repercussions far beyond the Square Mile. It puts a dent in the wider economy by acting as a drag on productivity, and consequently, living standards.

“A thorough assessment needs to be carried out to identify those regulations that deliver clear economic benefits and that should be carried forward, while pressing the pause button on those where the benefits for financial stability relative to the cost on the wider economy are uncertain.”

The latest CBI/PwC Financial Services Survey of 92 firms found that optimism about the overall business situation in the financial services sector fell significantly in the three months to December, having declined in seven out of the last eight quarters.

However, the subdued mood last quarter was not universal: while banks, building societies and general insurers were decidedly less positive than three months earlier, finance houses, life insurers and investment managers felt more optimistic.

Growth in overall business volumes slowed for a second consecutive quarter, though conditions varied across the financial services sector.

This year brings several challenges for the financial services sector. Most striking is Brexit, with virtually all firms viewing the impact of Brexit uncertainty as the most serious threat to the UK’s position as a leading global financial centre.

Companies are also concerned about other areas that threaten the UK’s global competitiveness, with half citing the perception that the quality of the UK’s physical and digital infrastructure lagged behind other advanced economies, and around a third pointing to an increasingly complex tax regime and the gold-plating of international standards.

Andrew Kail, head of financial services at PwC, said: “The UK is set to leave the EU exactly 14 months from today. A transition period is likely, but ultimately the financial services sector - a critical part of the economy - must prepare itself to operate without membership of this key trading market.

“The industry will need to take positive action if it is to preserve its trading status and business model.

“There is much activity in boardrooms despite the question mark over trade negotiation outcomes. In the coming months we can expect to see more detail on companies’ updated contingency planning.”

Profits in the sector as a whole continued to improve, although at a pace significantly below expectations. Employment dipped, having stagnated in the previous quarter, with firms planning to keep headcount stable in the three months to March.