The Impact of a Hard Brexit on the UK’s Financial Industry

The notion that the United Kingdom (UK) is managing most of the financial business of the European Union and that a hard Brexit would not significantly impact the UK’s financial industry may strike some as a misplaced belief. However, a closer look at the landscape reveals the intricate interdependence and the unique advantages that the UK holds in the global financial arena.

London: A Global Financial Hub

London has established itself as a leading global financial hub, attracting individuals and entities who wish to invest or seek investment. This international appeal is a result of London's reputation for openness, fairness, and robust regulatory frameworks. As such, a significant number of financial transactions take place in London, facilitated by its banks.

Contrary to the impression that the EU can easily replace London, it is evident that the UK's financial sector plays a critical role that the EU cannot readily replicate. For instance, people from countries such as Chile and Mongolia, who wish to raise funds or invest in copper mining, still choose London as their preferred venue. The EU cannot dictate to a Chilean copper miner that they must raise funds in Frankfurt, or compel a Mongolian pension fund to invest in European bonds in Frankfurt.

The Limitations of EU Action

Post-Brexit, the EU's ability to influence London's financial landscape is limited. The EU can only jail EU citizens who engage in financial dealings in London. They cannot force financial entities from countries outside the EU to conduct their business in other EU member states. This limited leverage highlights the resilience of the UK's financial industry and its prowess in the global market.

The UK's Flexibility and Resilience

The UK has demonstrated its ability to adapt and respond effectively to global challenges, such as the recent battle against the COVID-19 pandemic. The financial sector has played a crucial role in this effort, providing critical funds and resources. While the interest rates may not be at zero, it shows the UK's capacity to mobilize resources when needed.

Moreover, the European Union's own legal systems and financial services organizations are more aligned with those of the UK, particularly within the British Commonwealth. However, as the EU transitions to a more unified legal and financial structure, this alignment is losing relevance. This has prompted many in the UK's financial industry to seek alternative arrangements, such as moving staff, funds, and corporate headquarters to Ireland, a country that can operate under similar legal frameworks while also adhering to EU regulations.

The Future of UK Financial Services

While the UK's financial sector faces new challenges in the post-Brexit landscape, it is not destined to wither under the weight of these changes. Ireland, being the only remaining EU country to fully align with the Common Law system while also adhering to EU laws, presents a viable alternative. This has become a strategic choice for many financial institutions, as it helps them retain their operations within the EU's legal and regulatory framework without sacrificing their ties to the UK's robust financial ecosystem.

It is the inherent skills and adaptability of the UK's financial industry, rather than any gift the EU gives, that make it resilient in the face of changing geopolitical dynamics. The EU recognizes this and has allowed UK banks to continue operating within the EU on a limited basis, understanding that the collapse of the Euro or the disarray in investment trade would have catastrophic consequences.

In conclusion, while the impact of a hard Brexit cannot be overlooked, the UK's financial industry remains a vital and resilient part of the global financial landscape. The strategic moves made by many financial institutions to align with Ireland further cement the UK's position as a critical player in the global economy.