Brexit is supposed to create a major impact on the capital markets of the European Union throughout 2021. Upon the end of the transition period in between the EU and UK Trade and Corporate Agreement, most of the financial services were left out. Along with that, the UK got the freedom to forge alliances elsewhere. However, this includes other European Union countries out there as well. While keeping that in mind, it is worthy to deep dive and learn more about the impact caused by Brexit on the European capital markets in 2021.
Changes that took place in the financial services landscapeICMA Group told us that there is lack of progression in between the EU and UK stands when compared to the other important developments that are taking place in between the post-Brexit development period. This is where the decision was taken by the UK in order to grant equal amount to the share trading venues of Switzerland. As of now, UK has officially left the EU. Hence, it will not be bound to the ban implemented by the EU to proceed with trading on the Swiss stocks.
As of now, decisions are being taken in order to recognize the Swiss exchanges. This will be able to offer numerous investment and trading opportunities. For example, it will be possible to go ahead and invest on some of the favorites of institutional investors, including Roche, Novartis, and Nestle. These will allow return trade in the UK, which will be equivalent to an amount of 250 million Euros within a day. This is supposed to increase up to 1 billion Euros.
As of now, both Switzerland and the UK have discovered each other as excellent trading venues. Based on that, they are looking forward to getting into a mutual recognition agreement. This will provide opportunity to offset some of the businesses that left the UK from the beginning of 2021.
From the beginning of 2021, the financial services sector was massively left out from the UK. This happened as per what was expected in the Brexit trade deal. In other words, Brexit made EU no longer recognize the financial services regulation of the UK. It also created an impact on the trading venues and exchanges along with other equivalents. Due to the same reason, it was made difficult for some of the UK institutions to serve the customers in the way how they did during the transition period as well.
Impact on the financial services market of the UK
It is also important to analyze the impact that Brexit would create on the financial services market of the UK. Most of the stakeholders who are belong to multiple industries in London were providing warnings with related to the negative consequences that the UK will experience. According to the calculations of the UK Finance, the UK will be able to become the next op exporter of the world for financial services. This is backed up by the excellent trade surplus that UK had in the year 2019, which was equivalent to 60.3 billion GBP. On the other hand, financial services offered b the UK could contribute to around 76 billion GBP in terms of revenue to the UK treasure during the previous year.
Along with Brexit, it will be possible for London to become an independent global financial hub. The paramount position of London will also contribute a lot towards the above-mentioned fact. As of now. It will be able to contribute heavily towards the pending strategy review of the UK. On top of that, it is supposed to boost the revenue streams into the new markets.
The UK is also looking forward to increasing its financial standards along with global convergence. This would allow different financial service firms to operate in multiple jurisdictions while ensuring enhanced convenience. Based on all these strategies, the UK is looking forward to gaining market access to the financial services in different parts of the world. As of now, their main focus is on the countries such as the USA and Japan. This will continue to happen through the mutual recognition of regulations that will take place along with Switzerland.
Future relationships between the EU and the UK
As of now, the EU has made an official announcement that highlights more information related to the regulatory intentions of the UK before it can be provided with a grant equivalence decision. Such a decision would be providing opportunity for the UK to maintain strong relationships with the EU, even after Brexit. However, there are some important facts to keep in mind.
As per the UK, they have submitted all the required paperwork to the EU. Now it is up to the EU to go ahead and sign them and proceed with the transaction. This would help the UK to become one of the most prominent financial centers in the world. This will be backed up with an excellent regulatory system as well. However, there will be some concerns with related to the divergence from the rules of the EU. It is important to keep these in mind and get the best support offered on their way at the end of the day.
There are numerous political issues, which are creating a negative impact on the regulatory regime of the UK. Based on this, we could also see how numerous tensing situations rose in between the two parties. This might create an impact on the future agreements that the EU and UK will get into. However, both entities will go ahead and finalize a memorandum of understanding, which would cover all the financial services by the month of March in 2021. This would provide provision on equivalence at the end of the day.
We might still be too early to predict how Brexit will create an impact on the European capital markets, but based on these, we can have a basic understanding on how it would be like.