The United Kingdom announced it departure from the European Union a few months ago. Their announcement to leave the EU sent shockwaves to its former member states as well as the United States.
The governments of the respective countries were not the only ones impacted by the country’s decision to leave the EU behind; the banking industry took a bullet as well, clambering to find composure. The future for international banks in and outside of the United Kingdom began to look bleak.
For instance, banks in the United States such as Citigroup and Morgan Stanley took a hit when they opened in New York. They were down by 8% and 9%. JPMorgan Chase saw a 5.3% drop whereas Goldman Sachs saw a 6.1% drop. Shares in the UniCredit and Sanpaolo shut down by 24% and 23%.
Brexit was the primary cause behind the massive drops banks witnessed after the country made their departure announcement. Here is how the future of the banking industry may pan out in the following months after Brexit:
Restrictions on Passporting
The banking industry, asset managers, and insurance companies will not be able to establish operations across the European Union even if they are located in the United Kingdom. Passporting allowed banks to operate all over the EU if they had a base established in the United Kingdom.
However, now, with Brexit, that is no longer a possibility. American banks and Swiss banks also fall under this category. To make operating all across the EU possible again, special arrangements need to be made and negotiated.
Compliance with the Laws of the EU
The banking sector is a regulated industry. Brussels is responsible for instating most of the banking regulations. In the past, the United Kingdom has refused to abide by some of the imposed regulations such as bonus tax, there are still many that they agree on and follow.
The probability of the UK repealing or amending sectors of the financial regulatory law is unlikely. If they want to follow the requirements and conduct business with other member states of the EU, they will have to comply with the European Union’s regulations and come to a mutual agreement.
The United Kingdom and the European Union’s Continuing Relationship
Several different proposals have been put forth to show how the United Kingdom can still continue their relationships with the members states of the European Union after leaving it. The UK could join the EFTA or EFTA to become the next Norway or make a bilateral agreement like Turkey to allow customs union operations. The UK will establish some type of agreement to continue its relationship with other member states after their departure, as the future of their financial industry is dependent on them.
The United Kingdom, after the Brexit vote, has three years to leave the European Union and negotiate a deal with other member states. It is important for the United Kingdom to take steps to ensure the success of their banking industry.