The financial industry may experience changes as far as the accumulation and distribution of wealth is concerned. The government will inevitably be compelled to ensure that wealth is kept in the UK, and in particular the financial district. Finance has always been a major source of revenue, and with London being arguably the world’s leading financial centre, questions as to how the government will deal with the bonus cap have arisen, and how this will affect the financial industry. If a significant proportion of companies leave the UK due to a ‘harder’ Brexit, what will be the outcome to the industry? Many banks have signalled their intent to leave the UK if negotiations fail to deliver the same terms and conditions as we currently enjoy. Further, what will the capital flight laws be amended to? Will this be the end of London as a leading industry in the banking world should the negotiations provide unexpected changes? Lastly, how will the treatment of those who were previously categorised as being non-UK domiciled change once their tax status is fixed in line with that of the UK? This also applies to ‘returners’ to the UK who previously enjoyed the status of a non-domiciled resident.
UHNWIs and HNWIs in manufacturing
Manufacturing will be at the forefront of the Brexit agenda as trade deals are struck and announced. HNWIs in manufacturing are considered those who will prosper as the lower exchange rate should favour exports and hopefully induce more manufacturing in the UK. Indeed, manufacturing had historically been a strong industry and this should be seen as an opportunity to be able to revive flagging areas and build a platform for innovation. The question usually arises as to how long the UK can persist with higher imported inflation, not only in terms of goods and services, but in the raw materials which are vital for production. There are always advantages of lower exchange rates, however, if we are looking to maintain growth in the UK, the country needs to be seen as one which is competitive, and not an absorber of high costs. Further, the ability to attract inward investment is key to the UK economy, so it is vital to maintain a sensible trade-off between the lower exchange rate and the adverse impact of inflation.
Different scenarios need to be examined in order to illustrate the varying degrees of trade given: (i) tariff implications; (ii) UK participation in and out of the customs union; (iii) a potential Norway style agreement; (iv) access for EU countries into UK markets; (v) exchange rates and trade flows under varying types of agreements. It is important to examine most likely outcomes and measure fundamentals under the prism of economic uncertainty - a new and very useful metric which uses the uncertainty index to better understand economies in an uncertain global landscape.
Private Banks should be aware of the full passporting rights under current law and under the laws where the UK may be outside a ‘free trade zone’. It is important to be able to assess the full implications under various headings including: Lending, market banking, (including sales and trading) asset management and payment and electronic money services. If trade negotiations do not permit the UK to trade inside the EU as before, we should quantitatively assess the likely cost to the Private Banking industry and the UK economy.
UHNWIs HNWIs coming to London
This is a very important client base and a pressing issue for Private Banks. It is important also to qualitatively assess the impact of UHNWIs and HNWIs in their choice of destination under varying scenarios. We believe that there will be minimal change in this area because: (i) London will always geographically be the primary financial centre; (ii) regardless of the new rules, UHNWIs and HNWIs are still attracted to the judicial system where they continue to settle matters pertaining to their countries and; (iii) the UK system continues to be a strong attraction.
Red Lines Challenge
How will Private Banks fair under the government’s negotiations where strict red lines apply? These include: (i) No budget payments in terms of contributions; (ii) total restriction on immigration; (iii) new laws for the UK and, (iv) the complete removal of the UK from EU law. It is important to examine and assess how changes to these impact the Private Banking industry. If the government pursues ultimately very strict rules thus creating the platform for a hard Brexit, this may have an adverse effect on the Private Banks, and may serve to lessen the London’s grip as the leading centre for international banking.
Dr. Victor Chukwuemeka
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