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How has Brexit impacted UK Financial Services?

The financial services industry is one of the UK’s biggest export earners, adding £32 billion annually to the economy. This is also one of the sectors potentially most affected by the impact of Brexit. While COVID-19 has dominated the headlines over the past year that doesn’t mean that the shockwaves of Brexit have been any less deep beneath the surface. So, how has Brexit impacted UK Financial Services since the country exited the EU?
How has Brexit impacted UK Financial Services

The short-term vs the long-term impact

Some of the more immediate short-term impacts of the Brexit decision were instantly felt by brokers
writing insurance for travel, haulage and seafood. Client businesses have been feeling the after effects of Brexit for some time but it’s likely that the areas of Brexit still causing conflict for these enterprises will be smoothed out via negotiations in the coming months and years. Many insurance brokers outside of these areas have said that they don’t feel that their business has yet been affected by Brexit. However, given the figures that twice as many business leaders feel that the impact of Brexit has been negative, as think it has been positive, perhaps the long-term impacts on sectors such as financial services are simply yet to be felt.

The trading climate for insurance brokers has not changed

Passporting was one of the key issues for the financial services sector where Brexit was concerned and this is something that many businesses have been strategically planning for since 2016, hence the lack of turbulence following the actual exit. 35 new insurer subsidiaries have been formed in the past six years to tackle this and 27 million insurance contracts moved from the UK to the EEA.

The issue of equivalence

The problems surrounding passporting show how difficult it could be for the EU and UK to achieve the objective of equivalence for financial services in the future. Equivalence agreements need to be
implemented in order to allow brokers and insurers based in the UK access to EU markets. If there is a ‘sufficiently similar’ regulatory framework in place between two countries - and this is confirmed by the EU Commission - equivalence agreements will allow services such as broking to continue to be provided across borders. Currently, the UK has already put temporary versions of these agreements in place but has not received the same reciprocity from Brussels. A Memorandum of Understanding has been put in place that establishes a framework for future talks but a full financial services treaty still seems a long way off.

Cross border movement of data

An uninterrupted data flow across borders is another vital component of the insurance sector potentially subject to disruption due to Brexit. This is especially so as the industry becomes increasingly digitised. The exchange of data - with the right safeguards in place - is going to be essential and could become rocky ground if the UK decides to deviate from the GDPR in future.

The UK financial services sector has certainly felt the impact of Brexit but many of the more challenging issues may be yet to come.

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