The impact of Brexit on the UK Financial Industry

Executive summary

The term Brexit refers to the withdrawal of the UK from the EU. Since the Brexit talk was put forward on the discussion table, all the sector has been experiencing snags in their business operation and delivery of services. Brexit has affected all the sectors, including the financial sectors, but it has triggered colossal damages to the financial industry of the UK than other industries. It came into effect on February 1, 2020. Along with the Brexit,

the UK is also experiencing the coronavirus situation. Currently, the UK is battling both the circumstance and establishing a reliable regulatory framework to resuscitate their industries from collapsing into earth. However, circumscribed scholarly analysis on how Brexit impacts the financial industry of the UK has hindered the research findings. Regardless of it, the researcher has shown the effort to investigate the potential issues experienced by the financial industry of the UK since Brexit. The research is qualitative and uses a deductive research approach.

All the required data is amassed from the secondary source of data collection method, and ethics are followed firmly. The research finds that after Brexit, the financial industry of the UK is experiencing different issues, such as passporting right, regulation, interest rate and financial jobs. These issues have created a hindrance in the flourishment of the financial sectors amidst the difficult circumstance. The study proposes that the UK needs to adopt financial diplomacy to solve the issue of plummeting financial jobs and a bilateral trade agreement to resolve the issue of cross-border trade. They need to use the Swiss Banking Model to resolve passporting right issues.

However, the presence of research limitation has created a setback in delivering a study of wider scope. Thus, it has opened room for future investigation in this field.

Key words: Brexit, UK financial industry, Brexit and the UK financial industry, UK banks, Brexit and battle of financial services, Post-Brexit, Uncertainty

Chapter one: Background of the study

1.1 Introduction

The first chapter is the key to the undertaken study and offers a context to the study, and explains its importance based on the established research gap. It includes research background, research aim and research purpose, research question and so on. It allows the researcher to set the tone for the analysis and bring the research subject into context.

1.2 Research background

The United Kingdom (UK) voted to end the forty-seven years of relationship with the European Union (EU) and the European Atomic Energy Community (EAEC) on June 23, 2016, despite the campaign being kicked off in 2015 (BBC, 2021). The withdrawal of the UK from the EU and EAEC is called Brexit. The government had different motives for and against withdrawing from the EU. The decision to leave the EU brought different challenges and consequences. When the UK was within the EU, they could have imported and exported the business products and services with the twenty-eight members of the EU with zero tariffs. The country benefits from trade deals between the EU and other powerful nations. Brexit had started on February 1, 2020. Both the UK and the EU have agreed to keep several things the same till December 31, 2020, to provide sufficient time to reach new terms of a deal (BBC, 2021).

The new deal includes new rules for how the UK financial industry will perform transaction and trade with EU nations. Along with it, there is a rule for how the EU and UK will live and work. Since it is a current issue, there is not ample information regarding the impact created by Brexit on the UK financial industry. The UK has successfully developed a new rule for trade before ending the estimated deadline. However, low discussion on the financial services that accounts for seven per cent of the UK economy and ten per cent of tax receipts has triggered different potential issues for the financial industry of the UK.

With the end of the membership, the UK is no longer a single market. Therefore, the looming uncertainty on the future of the UK’s financial market has compelled various UK based financial organisation to shift their business markets into the EU market to exploit the benefit of the single market. London will be the most affected by this step because it is the city with the largest number of financial organisations (Warner, 2021). For several decades, the city has dominated the financial centre and has created a strong reputation for the service and amenities offered to its clients. Brexit will likely disrupt the vast amount of money channelling through the UK through financial markets.

Thus, making it very challenging and difficult to imitate this market. Clearing the euro-dominated derivatives will be the biggest issue for the UK after undergoing Brexit. This issue has been identified following the warning of the European Central Bank (ECB) on the UK pursuit to retain its role in euro-denominated derivatives clearing (Donagh, 2017). Additionally, the potential issues raised due to Brexit in the financial industry include regulatory impact, economic impact, cross-border trade and so forth. Therefore, it is indispensable that the UK and its governing bodies carry out the necessary action to resolve the identified issues raised due to Brexit.

Therefore, this study emphasises Brexit and its impact on the UK financial industry. After the identification of the potential impacts of Brexit on the financial institutions of the UK, the study seeks the possible steps that can be carried out to reduce or overcome the issue(s).

1.3 Research rationale

The emergence of coronavirus in the UK has affected the financial industry, including other different industries, which has prevented the financial industry from practising the new regulations following Brexit. Brexit has created different challenges for various industry, but the challenges created to the UK financial industry is significant. It is significant in the sense that it affects the entire national economy and the creation of job opportunities. The lack of limited research or study on the impact of Brexit, particularly on the financial industry of the UK, has further signals the significance of this study. The existing gap on it can be covered only by undertaking this study, which will be fruitful for the potential researchers in the future seeking to investigate the same issue. Additionally, it serves as a basis of tool to provide informed information to the holders of business within the financial industry of the UK.

1.4 Research significance

The research emphasises the investigation of the potential impacts of Brexit on the UK financial industry. The decision to leave the EU has triggered various impacts on different sectors, despite the advantages. Amongst all the sectors, the financial industry of the UK is forecasted to suffer to a greater extent. Therefore, the research is directed towards evaluating the impacts that Brexit pose on the UK financial industry. Additionally, the research provides feasible solutions to the financial industry to tackle the detrimental effects of Brexit.

1.5 Research aim and research objectives

The research aims to assess the impact of Brexit on the UK financial industry and the means to overcome it. The research objective is carried out with the motive to accomplish the research aim. The sub-specific objectives of the study are;

To identify the potential issues raised due to Brexit in the financial industry

To explore the severity of the issues in the financial industry

To identify the approaches to resolve the issues

1.6 Research question

The research question is;

What are the impacts of Brexit on the UK financial industry and ways to reduce or overcome the issues?

1.7 Research structure

The research follows the following structure;

Chapter one

Chapter one provides a brief understanding of the subject matter. The research begins with a research background followed by rationale, research aim and research objective, research question and research structure.

Chapter two

The second chapter of the research includes a literature review section. It provides the literature review related to the undertaken study. The chapter has been further classified into different sub-chapters, such as introduction and potential issues, to provide a critical review of the literature and portray the scholarly perspective on it.

Chapter three

The third chapter of the research includes methodology and method. It is an indispensable part of the study because a slight error in the selection of method guides the research to undesirable or unanticipated results. It covers various sub-chapters, such as research approach, research method, data selection and collection and research limitation. Out of all the methods, ethics is an important aspect of this chapter.

Chapter four

The fourth chapter of the research includes results and discussion. In this chapter, the results of the primary investigation are displayed, analysed and discussed. The accumulated qualitative data is coded and thoroughly discussed with the development of various themes.

Chapter five

The conclusion is the last chapter of the study. In this chapter, no new information is added that indicates that all the information used in the study is summarised. Based upon the findings, this chapter provides a feasible recommendation for the study. Apart from the recommendation to the study, it provides recommendations for further study as well.

Chapter two: Literature review

2.1 Introduction

Brexit has brought dark clouds on different sectors, but its detrimental effects are majority felt by the financial industry of the UK. Since the UK has formally left the EU, there are plenty of areas that the UK government needs to fill up to recover from the negative impacts created by the decision to leave the EU. The existence of limited scholarly articles and review papers on the impact of Brexit on the financial industry of the UK indicates the necessity to identify the potential issue confronted by the financial industry and solutions to it (Adler-Nissen, Galpin and Rosamond, 2017). Therefore, this chapter carries out a detailed literature review on the financial industry of the UK to investigate the potential issues faced by them. There has been the use of current articles and journal papers searched using a reliable database, such as Google Scholar and PubMed, as far as possible to support the presented arguments and to cite the researcher work. Furthermore, this chapter offers a thorough discussion and analysis of the literature.

2.2 Potential issues

The UK financial industry has a crucial role in the national economy. There was a huge debate on the financial service amidst the possibility of leaving the UK from the EU. Clarke et al. (2017) contends that Brexit has a significant influence on financial services in the UK, depending on how exactly it unfolds. London is estimated to be the financial hub in the UK. The position and turnover of the banks and financial organisation operating within London depend on international and offshore financial activities. As of 2015, the UK financial industry has contributed £55 billion to the UK economy and created millions of job opportunities. The government decision to exit from the EU in 2016 has fuelled perceptions of uncertainty and depressed risk appetite in the UK financial industry (Zetlin-Jones and Shourideh, 2017). When the risk appetite becomes lower, it constricts the business investment. The economist pundits estimated that there might be a swift deceleration of growth following Brexit. It is assumed for the UK growth to slow to 1.4 per cent in 2016 and 0.7 per cent in 2017, compared to the predicted growth of nearly two per cent every year with the UK in the EU. When the UK formally left the EU on 21 December 2020, new dawn embarked for the EU and UK bond. Despite the long discussion on trade and different regulation before the end of the deadline, there was a little discussion of financial services that have led to different issues (Bloom et al., 2019). Therefore, the following paragraph discusses the potential issues raised due to Brexit in the financial industry of the UK.

2.2.1 Regulatory impact

The decision of the UK to leave the EU has complicated the regulatory picture. The majority of the financial and banking rules are developed and governed by global regulators. However, with Brexit, the chances of the UK regulatory standards might become higher than those developed by the EU, indicating sudden impact might be constricted. Following the Brexit, the UK financial industry becomes less stable and creates a severe legislative challenge (Howarth and Quaglia, 2018). All the European workers could work in the UK before Brexit, but after it, there is the loss of European Economic Area (EEA) cross-border financial passport that have negatively affected the UK financial sector (Howarth and Quaglia, 2017).

The emergence of coronavirus has affected the UK financial industry to practice the new era following the exit of the UK from the EU nations. Whatever the result might be, the financial industry will find it difficult to comply with EU regulation to continue to carry out the business operation across the European countries, which was not the case before Brexit. The financial industry needs to follow all the regulatory demands and clear the custom duties to import and export the goods from the EU.

2.2.2 Passport rights

The UK has immediately lost its passport rights after deciding to leave from EU. The lack of passporting (or the right to freely trade) means that financial advisors can no longer be able to travel in and out of Europe to carry out business. As a result, many senior executives have relocated to other European hubs, such as Frankfurt and Paris, the latter of which is appealing due to the possibility of minimum income taxes. According to Miethe and Pothier (2017), the UK had been cut off from the European single market following the Brexit. Subsequently, it has forced the financial institutions to surrender their financial passports, removing their ability to offer services across the EU from a London base. It is a significant blow, especially to the banking sector, which will lose an estimated twenty per cent of annual revenue due to the passport. Other industries are less affected by Brexit compared to the financial industry. Asset management funds and insurers who prefer to operate across Europe through subsidiaries have embarked to rely less on passporting rights to resolve this problem. It is a significant issue for the financial sector, given how it has been affected by the single market in goods and services, and the evolving idea of cross-border passporting, particularly in the nearly twenty-five years since the signing of the European Single Act (Mindus, 2017). The 2007-08 financial crisis exposed flaws in the EU’s ability to track and fend off existential risks to the financial system (Hodson and Mabbett, 2009). Therefore, the industry is now subject to a dynamic, interwoven network of directives, delegated regulations, and regulatory guidance.

In mid-2016, the Financial Conduct Authority (the largest independent public body responsible for controlling finance and reporting to government and Parliament) reported that five thousand four hundred seventy-six UK-based companies had benefited from some form of passporting rights to conduct business in other EU countries. Similarly, eight thousand eight business organisations with passporting rights from other EU countries work in the UK. However, given the wide range of activities that any company can engage in, each of which may be subject to various European regulations, the total number of outbound passports kept by UK-based businesses was three hundred thirty-six thousand, four hundred twenty-one. On the other hand, the total number of inbound passports possessed by the business organisation based in the EU and operating in the UK was twenty-three thousand five hundred and thirty-two (Schoenmaker, 2017).

2.2.3 Euro clearing

The Brexit has impacted the euro clearing process and has affected the UK step to keep the hold of its dominant role in euro-dominated derivatives clearing (James and Quaglia, 2019). According to the Intercontinental Exchange (ICE) paper, London is the globe’s leading centre for euro-dominated derivatives clearing that manages three-quarters of transactions, whose average daily value stands five hundred seventy-three billion United States Dollars (Van Kerckhoven and Odermatt, 2020). The shifting of the financial bodies to other destination of the European nations signifies the necessity of clearing houses to match all the buyer and seller orders. The clearing of the euro has given rise to another problem, i.e., liquidity. There is a political pressure on this matter and they want it to happen in a Eurozone jurisdiction under the direct control of EU institutions.

2.2.4 Financial job

The Brexit has brought uncertainty on the financial job opportunities. Most of the worldwide banks and finance organisations have their headquarters in London, from which they carry out various operations and distribute service to its client. Due to Brexit, they are struggling to circulate their services to the European countries. When the global banks and financial organisation shifts or develop alternative bases in the other EU member states, it significantly lowers the financial job. The situation has been much worse in London because a majority of the banks and financial bodies are in this city. Djankov (2017) has estimated that at least seventy thousand financial jobs will be reduced following the UK decision to leave the EU. Subsequently, it impacts the UK tax revenues. Since the discussion on the Brexit agenda, a number of financial organisations operating in the UK have shifted their operations and assets to other parts of European nations. Since then, the graph of job losses has significantly plunged. However, the sluggish rate in the shifting of the financial operation has provided a ray of hope for the Britons seeking to make a career in the financial industry (Chang, 2018).

2.2.5 Equivalence

Equivalence is defined as the judgment made by one European nation to identify and accept another nations’ legal requirements for regulating a business product and service, despite the marginal variations on the requirements. After the Brexit, it has been a concern to the financial services of the UK. The financial companies operating in the UK can carry out the trade with other European countries only after they comply with the regulatory requirements of those nations. The lack of flexibility on the full-equivalence agreement for financial organisation carrying out their business globally has affected the UK financial industry, even the EU willingness to agree on equivalence in other sectors.

2.2.6 Interest rates

The decision to leave the EU has negatively affected the interest rates on pension, saving and mortgages. Both the Brexit trade deal and the coronavirus has contributed to the low base rate. For the first time, the Bank of England’s Monetary Policy Committee (MPC) has set the base rate to 0.1 per cent, which has ultimately affected the saving and mortgage rates. Since the talk of a referendum, the Bank of England has continuously slashed the interest rate. With the drop in the saving rate, investors who feared instability are withdrawing their capital. Besides, a fall in interest rate reduces the financial industry purchasing power and led to inflation (Fernández, Paz-Saavedra and Coto-Millán, 2020).

2.3 Feasible method to resolve the identified issue

Brexit is a major driver for transition in the global economic services and fintech sectors. It still is hard to ascertain the extent of the damage to the UK, particularly because the pandemic has muddled economic performance. On the other hand, it is already preparing its retaliation, including relaxing stock market rules in order to attract start-ups, leading the charge on green finance, and pivoting toward Asian markets, as well as considering other steps to attract investors. International banks took an early risk to plan for the worst-case scenario and the likelihood of a “strong Brexit” by enhancing their European activities, allowing for a quick integration as Britain left the single market unresolved (Mustafa, Hussain and Aslam, 2020).

Several factors, including their own legal and regulatory structure, have prompted changes in the financial industry’s commodity and corporate entity strategies. While Brexit does not necessitate immediate changes, financial institutions’ decisions in other areas may have an effect on their ability to continue providing the same services to customers. In order to continue offering financial services, UK banks with branches in the EU may have to convert those entities to subsidiaries. As the United Kingdom becomes a third country, contracts will need to be repapered to represent the UK’s changed legal standing. Financial institutions would be expected to move relevant customer contracts to EU entities in addition to transferring permissions. This is a big job, but it’s important if institutions want to keep providing the same quality of service to customers. Shift pricing and VAT ramifications will arise from the current cross-border charges for services offered by an old UK platform business to a new EU company (Faccini and Palombo, 2020). Straight agreements under which the UK Company seeks to continue certain main innovative threat operations in relating to financial resources that may be acquired and joined upon by the EU Company with Foreign buyers will also be considered. It would be necessary to understand the job tax implications for employees transferring to new locations.

London, as the capital of the United Kingdom and Europe’s largest city, continues to draw talented and skilled people looking for work, research, or to start businesses. Higher-quality graduates contribute to London’s economic strength. These graduates often obtain better-paying jobs, resulting in increased demand in the region. London, together with New York and Tokyo, is perfectly situated as one of the global economy’s launch sites’ geographical location between Asia and North America (Stoupos and Kiohos, 2021). It is doubtful that leaving the EU would have an effect on its position as a global powerhouse.

Moreover, in order to conduct business as normal, the UK financial industry would need to adhere to local authorization and licensing criteria. The same rules would apply to EU-based companies wishing to do business with the UK financial sector. When a cross-border dispute becomes more serious, the financial sector should be aware of the applicable law and the court with jurisdiction over the contractual dispute. When conducting trade with each other, both the UK and the EU should adhere to each other’s custom tariffs and regulations. To get around the passport rights problem, financial firms may use the Swiss Banking Model (Luthra, 2021). This model can be useful in overcoming the barrier to trading within a single market. Similarly, international trade deals must be implemented to address the problem of financial service contracts.

Chapter three: Methodology and method

3.1 Introduction

The technique employed by the researcher to amass the required data to provide a suitable framework for the undertaken study is called research methodology (Goddard and Melville, 2004). It provides all the steps and activities that the researcher needs to follow to compile the needed data on the subject matter of the undertaken study. In this research, there has been the utilisation of an appropriate research methodology, with the motive to garner meaningful, factual and relevant data. The main idea behind the research methodology is to set out and step involved in gathering the necessary data and information to arrive at a concrete conclusion. Different researchers take various step and method to carry out the research. The selection of a particular research method depends on the goal and subject theme of the study. The researchers can use different elements of research methodology, such as research method, research design, research approach and data collection, in their study (Kumar, 2018). The data employed in the study can either be raw or processed based on the nature of the study. When carrying out the research study, there has been the utilisation of reliable components of research methodology to boost the research validity and generalisability. It has been carried out to investigate the potential issues faced by the financial industry of the UK after the Brexit.

3.2 Research approach

The research approach is a method of assessing and analysing data to achieve the research objectives. There are two types of analysis approaches; the inductive research approach and the deductive research approach (Hodkinson, 2008). The use of printed or available material is emphasised more in the deductive analysis method than creating a new one. It examines the analysis from top to bottom and tests various forms of hypotheses before coming to a conclusion. It focuses on empirical study and quantitative analysis (Burney, 2008).

The development of new ideas is emphasised in the inductive research method. It is important in qualitative research because it provides a bottom-to-top perspective. It entails gathering data, analysing the pattern of data, gathering information, and developing hypotheses based on the gathered data. It starts with an open mind and is based on the researchers’ observations and experience (Thomas, 2003).

Instead of using an inductive research approach, the deductive research approach was used in this study. It includes a set of steps for analysing and systematically examining data. The inductive research method was overruled because this study does not focus on the creation of new ideas or concepts. The complicated data is easily comprehended due to the creation of various main themes from raw data. Rather than directing and controlling the information collection, it provides a conclusion based on the interpretation of the data gathered during the study. The deductive technique helps to discover what has exactly happened and recognise pattern and results on undertaken research. Furthermore, this technique is appropriate for the research project because it aids the researcher in establishing a connection between research findings and research objectives.

3.3 Research design

The technique employed by the researcher to conduct the research study that describes a brief and logical method to resolve developed research question through the accumulation, interpretation, discussion and analysis of data is called research design (Tobi and Kampen, 2018). When the research design of the study is appropriate, it becomes easier to identify and evaluate the issue. Subsequently, resulting in the achievement of the research question and objectives. Because of its summarisation and contextual structure, it aids in the analysis and presentation of data with various figures. There are different research designs, such as descriptive research design, experimental research design, and review research design. Each research design is different, and utilisation of it exclusively depends on the nature of the undertaken study.

The descriptive research design emphasises elucidating and explaining the different elements and peculiarities of the research (Siedlecki, 2020). In this research design, there is the use of figures and graphs, such as pie charts, line diagrams, tables, and so forth. On the other hand, the review research design displays the data linked with the undertaken study in various types of literature review. It primarily emphasises sorting information and data from various sources of literature, and critically analyses the sources. Experimental research design, on the other hand, considers the testing of a particular hypothesis by looking at the interrelationships between the study dependent and independent variables (Rogers and Révész, 2020). In it, data collection is driven by evaluation and investigation of the variables.

In this study, there has been the use of descriptive research design over the other research designs. The descriptive research design portrays the structure and characteristics of research work and assesses the probability of achieving the research goal and objective. The utilisation of this method helps to describe the facts and information in a non-numerical form and provides a holistic understanding of the research issue. Furthermore, this design has been selected because of a lack of information on the undertaken study.

3.4 Research method

Research methods, according to Burns and Groove (2014), are the procedures for collecting and analysing data. It aids in the successful completion of the research and the achievement of a positive result. It entails the identification of problems, the formulation of a theory, the gathering and evaluation of data, and the creation of a feasible conclusion based on the data and evidence gathered. There are many methods for conducting research. Qualitative research methods, quantitative research methods, and mixed research methods are a few of them. Each research method is unique, and the one chosen is determined by the data collection method.

The qualitative research method is a research method that emphasises gaining detailed knowledge and understanding of the subject theme. This methods’ main aim is to uncover secret motives, viewpoints, and values. It collects information from candidates to investigate social phenomena (Silverman, 2020). Quantitative analysis, on the other hand, emphasises statistical and numerical significance. It converts the information into numerical data and statistical format. As opposed to qualitative research, it is more organised and has a higher level of validity and generalizability (Lynham, 2002). Finally, a mixed analysis approach is a combination of both methods. As a consequence, it allows a researcher to examine the topic from both viewpoints (Morse, 2016).

Since the research information is not presented in numerical format or statistical manner, the qualitative research approach was chosen over the quantitative research method in this analysis. Thus, it allows the researcher to amass in-depth insights into a problem or produce new ideas for research.

3.5 Validity and reliability

Reliability and validity are significant research aspects. Both terms are interlinked and play an important role in enhancing the reputation and quality of undertaken research. Validity checks to see whether or not the outcomes of the research needs have been achieved (Roberts and Priest, 2006). Conversely, reliability assesses the reliability of all test findings (Golafshani, 2003). In this study, the researcher is careful to ensure that the data accumulated are reliable and accurate. Prior to using the data or facts, the investigator checked the authenticity of the data source. It is done to determine the data validity and reliability. As a result, the researcher has only used sources that include high-quality articles and academic papers.

To ensure the applicability of data collection and interpretation, the researcher has considered sampling biases. Proper record-keeping was carried out in the research to ensure data transparency and continuity.

3.6 Data selection and collection

Data selection comes before the practice of data collection. It is the procedures of determining the reliable data type, sources and instrument to amass data. The selection of suitable data for a study affects data integrity and helps the researcher to answer the research question (Paradis et al., 2016). In this study, different parameters, such as type and source of data and instrument to amass data, has been taken into account to extract the appropriate data selection.

The smooth running of the research study requires continuous data flow. It assists researchers in completing their studies. According to Rabianski (2003), data can be gathered from either a primary or secondary source. The primary data is gathered on the spot in the targeted sector. As a result, to gather information from a primary source, the scholar must conduct interviews, surveys and questionnaires. Since it takes a certain amount of time to send the question and elicit information from the participant, the timeframe for gathering information from the primary source is lengthy. It’s much more expensive (Harrell and Bradley, 2009). Primary data is up to date because it collects data or knowledge in real-time rather than accumulating data from older sources. Therefore, researchers have complete control over the data gathered from primary research and can choose which design, methodology, and data analysis tool to use. Furthermore, data gathered from a primary source is referred to as first-hand knowledge (Hox and Boeije, 2005).

Second-hand information refers to secondary data. It is compiled from accessible or printed journals, news articles, books, magazines, and various internet articles. According to Granello and Wheaton (2004), it is data that has been gathered in the past by someone else but has been made available for others to use. It is primary data at first, but when it is used by a third party, it becomes secondary. Secondary data, unlike primary data, is generic and not personalised to meet the needs of the scholar. When compared to primary data, it is more readily accessible and easier to compile. It is cost-effective. Furthermore, when compared to primary data, it may not be authentic or reliable.

In this research study, necessary data were collected from a secondary source of the data collection system. The accumulation of data from primary source was overlooked because of the ongoing coronavirus crisis throughout the UK. The needed information was gathered from available journals, government publications, and online publications to investigate the impact of Brexit on the financial industry of the UK. The utilisation of secondary data collection method boosts the research validity and reliability. In addition, the researcher has selected secondary data for time-saving and cost reduction.

3.7 Sampling strategy

A targeted sample was selected and analysed before performing the secondary research. The selection of sample simplifies the secondary study because it narrows down the topic on which the research is to be conducted. When amassing the secondary data, it was ensured that it aligns with the subject matter and enables the researcher to accomplish its goal. There were limited scholarly articles and review papers on the impact of Brexit on the financial industry of the UK, despite the presence of abundant papers on the impact of Brexit on other industries of the UK. Therefore, the researcher has been cautious while choosing the available material. The existence of inclusion and exclusion criteria has helped the researcher in this step. The inclusion of it in the study ensures that the study does not diverge from the outlined research aim and research objectives (Patino and Ferreira, 2018). Likewise, it evaluates what kind of information or data can be utilised and cannot be utilised in the study. Exclusion criteria are the traits that avoids prospective subjects from being a part of the study. Nonetheless, inclusion criteria are the characteristics that the study must have if they are to be considered in the study. Table (a) illustrates the inclusion and exclusion criteria of the undertaken study.

Inclusion criteria Exclusion criteria

Literature articles published after 2000s Literature articles published before 200s

Literature review from the UK Literature review outside the UK region

Brexit impact on the UK financial industry Brexit impact on other industry of the UK

Table (a): Inclusion and exclusion criteria

3.8 Data analysis

Data analysis is the methodology used to determine, indicate, recap and analyse statistical and logical methods. It is an essential part of the research as the accumulated information is summarised in this section (Sgier, 2012). It involves the analysis of data gathered by empirical and logical reasoning to evaluate patterns and trends. The objectives of data analysis are to extract useful data, and to allow the researcher to make a fair assessment. Qualitative data analysis, quantitative data analysis and a mixture of the two approaches are used to analyse the collected data. The quantitative data is analysed using various statistical instruments to analyse numbers and figures (Dey, 2003). Quantitative data, on the other hand, focuses on recognising shared research sequences and analyses these sequences critically for the accumulation of research objectives.

A qualitative analysis methodology was used in this study. The thematic analysis was used to analyse the amassed data or information. It is the methodology used to define, analyse and interpret the themes with qualitative data (Vaismoradi et al., 2016). As a result, the researcher has introduced various themes in this study to arrive at appropriate conclusions. The research findings have been summarised, and the data has been interpreted analytically.

3.9 Ethics and bias

The role of ethics in the research study cannot be overstated. Every researcher is responsible for adhering to ethics because failing to do so reduces the research reliability and validity (Gregory, 2003). The term ethics refers to a collection of rules, standards, and codes of conduct. It demotivates or dissuades researchers from incorporating other peoples’ work into their own. While conducting research, every researcher must obtain permission from ethical bodies. When they do so, it adds to the legitimacy and authenticity of the research project (Resnik, 2015). The research was conducted with all ethical considerations in mind to arrive at a valid conclusion.

The research was carried out following all ethical norms, rules and directions. The researcher has maintained the authors’ originality and granted credits for their works while accumulating secondary data. The researcher has not manipulated any results but has shown as it is. All the research work was paraphrased to evade plagiarism. When carrying out the study, it was ensured that the accumulated data created no harm or distress. All data collected is encrypted and used only for the study purpose. The research bias and sampling bias has been avoided throughout the study. Additionally, the data collected from the secondary source has been referenced using the Harvard Referencing Style.

4.0 Research limitation

There are no studies without limitation. It prevails because of the limitation on research methodology, and it impacts the research findings. It has been investigated that the majority of the researchers show unwillingness to discuss the research limitation because of the fear of losing the research credibility and research value.

The first limitation of the research is time. Because of a restriction on time, all required secondary data was quickly collected by the researcher. The time available may have allowed the researcher to review various articles before using them in the research. Budget is the second constraint on the study. The researchers had to use the secondary data collection approach because of the small budget. A further improvement in study credibility and enrichment of the study results could be achieved by including primary research. Limited access to data is the third research limitation. The presence of limited scholarly articles and review articles on the impact of Brexit on the UK financial industry has hindered the research finding.

Chapter four: Results and discussion

4.1 Introduction

Chapter four gives a detailed finding of the undertaken research. The finding of the study has been analysed and discussed in this chapter four. As all the information has been exclusively gleaned from the secondary source, qualitative data has been preferred over quantitative data. Therefore, qualitative data has been coded and displayed in themes. When developing the research theme, the researcher has ensured that each theme seeks the answer to the developed research objectives and research question. After the finding, the fourth chapter provides a thorough discussion on the meaning of the results linking it with the relevant literature.

4.2 Results

4.2.1 Cross-border services

There is no doubt that the financial industry of the UK contributes to the national economy. Almost half of the contribution to the national economy comes from overseas or international and wholesale business. It includes various kinds of activities, such as offering complex insurance against risk to which corporate client are uncovered, and trading bonds. However, after the Brexit, all the international business carrying out their business operations within the UK will require a legitimate passport. It will not only apply to the overseas business but also the firms based in the UK. Therefore, the UK financial industry has lost passport rights and access to the single market after the Brexit. The loss of passport rights creates a significant problem during cross-border trade. After the Brexit, issuing the passport becomes highly complex. Before the Brexit, most of the UK-based firms has benefitted from certain kind of passport rights to perform business with EU nations. The passport rights were equally enjoyed by the financial industry based in EU nations that carried out their operations in the UK. It has been found out that the UK-based financial industries have held a higher number of passports than the firms based in the EU and carrying out their operation in the UK. It evidently indicates that the loss of passport rights could bring consequences for both businesses. In summary, loss of passport rights will have a significant impact on the UK-based financial industry and their business throughout the EU countries.

Financial service contracts are also impacted by Brexit. Before it, it has allowed the clients to access a diverse suite of cross-border financial products and services from UK-based banks, which will be immediately put to an end after the Brexit. Therefore, it has created a growing concern or risk for EU-based business and UK-based business.

Furthermore, the UK financial industry will need to stick with local authorisation and licensing requirements to carry out the business as usual. The same will be applied to the EU-based business seeking to carry out business with the UK financial industry.

When the cross-border dispute grows higher, the financial industry should know the governing law and the court that has the right to make jurisdiction on the contractual issue. Both the UK and EU should follow each other custom tariffs and regulations while carrying out trade with each other. Financial firms can use the Swiss Banking Model to overcome the passport rights issue. This model can be helpful to resolve the obstacle to trade within a single market. Similarly, bilateral trade agreements need to be carried out to solve the financial service contract issue.

4.2.2 Regulation

The Brexit has brought changes in the existing regulation. Currently, all the industries are following new regulations to carry out their operations in the UK and EU. Most of the regulatory landscape has not yet been fully defined for the financial industry. The financial industry in the UK is uncertain about the policy, the legislative framework that they will be following in the coming days. Until now, they have been following and practising the EU regulatory framework for the business transactions and import and export of the business commodities. The change in the regulations has left the UK insurers and EU policyholders on whether or not they can continue to play claims without authorisation in the EU nations. The obligation to follow and meet the legislative requirement has made the financial industry of the UK unstable. Since the regulatory framework for the financial industry is on the discussion, still there is uncertainty in the UK financial industry.

4.2.3 Interest rate

The interest rate has been plummeting in the UK since the discussion to leave the EU member states. The sharp fall in the interest rate has affected saving rates, pension rates and mortgages. The drop in the interest rate is not good for the banks and the financial service providers of the UK either. Both the Brexit and coronavirus pandemic have compelled the Bank of England to make sudden and dramatic changes in the base rate. The current base rate is the historically low rate. The fall in the base rate is the major factor behind the decline in saving and mortgage rates. The fall in the pension rate has been a significant concern for the individual who runs their livelihood from it. If this situation continues, the financial industry of the UK will lose its purchasing power and enter liquidity. Furthermore, the drop in the interest rate has created uncertainty for the investors investing in different projects. As a result, they have become attentive to the future of their business organisation in the UK.

4.2.4 Financial job opportunities

Since the talk of the referendum, the global financial industry operating in the UK has been attentive in their future. It has been a difficult moment for both the UK and EU financial industries operating in each other jurisdiction because they have been a part of one another for several decades. When multiple financial industries operate, they provide financial job opportunities to youngsters and other EU peoples. However, following the Brexit, the financial industries operating in the UK region are shifting their operation to other EU states. It has dramatically cut employment opportunities, particularly in the financial areas. When the financial industry shifts, it increases the pressure on the existing financial organisations to generate job opportunities. It is vital to generate job opportunities to reduce the unemployment rate and contribute to the national economy. After the Brexit, the moment has not been in the favour of the UK because, at the same time, a new virus broke out affecting worldwide financial industries.

London, a city with a higher number of financial industries, needs to resolve this issue swiftly. The delay in it deteriorates the situation. Therefore, the feasible solution to it can be financial diplomacy. It helps the UK to boost its spending in different markets like the US and Asia and creates a feasible platform for the financial industries based in the US and Asia to set up their operation in the UK.

4.3 Discussion

Despite a major change in liquidity in shares and options, the United Kingdom’s withdrawal from the European single market on January 1 was stable in the finance industry, with the exception of the drop in exchange for products. In comparison to the previous five years of extreme instability, the near-term policy environment is now reasonably stable, with the EU and the UK following various operating routes. The City of London has been placed on the back foot as a result of the financial decoupling, while the future of EU financial services will be determined by whether EU policy promotes further financial market integration (Sohns and Wójcik, 2020). It will take years for the systemic ramifications of this current state of affairs to become apparent.

The financial and banking industries are critical to the UK economy, promoting transfers, investments, and maintaining that the majority of the nation can trade. The absence of economic access for the Banking and financial services market to the EEA market may have a negative impact on the UK economy’s results. Implications on development, capital investment, and institutions’ opportunity to sustain delivering the same services as before may all have adverse implications for other industries. It has been discovered that the UK-based capital market has a greater percentage of passports than the firms based in the EU that do business in the UK. The right to keep passporting their services into the territories of the other party would be one of the most significant losses for both parties. From the starting of the year, financial services companies will not be able to create a footprint in the EU, and directly proportional, or offer border services into each other’s territory dependent on a territorial law implementation. According to a recent survey, almost 5500 UK businesses use passporting to do business with the rest of the EU. And the currents are reciprocal. Using passporting laws, over 8000 companies from the rest of the EU trade into the UK (Polyzos, Samitas and Katsaiti, 2020). They will continue to do business as before, but only in accordance with local authorization and licensing criteria, which they will be treated equally to domestic entities once received.

To be sure, one of Britain’s strengths has always been regulation, at least when it comes to understanding how London became Europe’s financial center. This is the case because English law offers some practical benefits in areas such as debt issuance and insolvency legislation, and compared to their continental European counterparts, British labor regulations are much more relaxed and employer-friendly. While this has previously been an asset, Brexit has greatly complicated matters. The United Kingdom will have to replicate or re-negotiate more than 40 years of EU laws and trade agreements. This will certainly take time, and a number of financial services firms will be affected. Aside from control matters, it’s uncertain if new financial regulations in the United Kingdom would benefit the industry. To be honest, one of the opinions used by Brexit supporters to explain their decision to leave the EU was this. Brexit proponents argued that by breaking away from the shackles of extreme Brussels bureaucracy, Britain would enter a new era of globalization that would favor the monetary division (Fuller, 2020). Overall, while the autonomous economic system can be a significant benefit, the rapid impact of an economic recession may be too much for many London businesses to manage.

The existing stock of cross-border contracts held by customers will be affected. Swift action is required to provide the requisite clarity that these contracts will continue after the UK leaves the EU. UK bank reserves are projected to be worth €1.3 trillion in the delivery of financial goods and services across foreign borders to a variety of customers, including states, businesses, and individuals. A substantial number of contracts back up these facilities. To avoid disruptions, contractual uncertainty in cross-border relationships must be resolved quickly. Early in the talks, both the UK and the EU have a vested interest in addressing the problem of contractual ambiguity on the stock of cross-border financial contracts. This is to avoid any detrimental market effects, such as higher consumer costs or economic instability in the United Kingdom and the European Union. In the absence of a blanket solution, each contract will have to be assessed on its own to determine if the elements to be conducted constitute a regulated operation that is no longer permitted under the EU passporting scheme and whether the activity is still permitted under the national laws of the Member State where the client is based. Customers may be impacted greatly by this uncertainty, as well as the potential need to switch or restructure contracts. There is precedent for dealing with contractual confusion as legal regimes alter. This level of confusion over how an existing stock of contracts would be handled during a transition between legal systems is not unusual (Kalaitzake, 2020). The EU, the UK, and individual Member States will be able to take several actions in a short period of time to avoid any negative effects of violating existing contracts or requiring contracting parties to engage in economically inefficient and wasteful restructuring.

The relationship between the UK and the EU is not the only thing that changed after Brexit. As a result of the UK’s withdrawal from the EU, it will no longer be a party to trade negotiations between the EU and third countries around the world. Agreements between the EU and third countries, such as insurance agreements with the US and Switzerland, and agreements with other third countries, must be re-established (Van Kerckhoven, 2021). The government is likely to make financial services a priority of its new trade agreements, given the UK’s strengths in this field. The United Kingdom can also try to see beyond the EU-agreed market access rights.

Chapter five: Conclusion

5.1 Conclusion

The entire study is fragmented into five chapters. The first chapter sheds light on the undertaken study and includes different sub-chapters, such as research background, rationale, research aim and research objective, research structure and much more. This chapter enables the reader to know the reason behind carrying out the research and its significance. The second chapter includes a literature review. All the scholarly articles and review papers have been included in this study to support the arguments made in different sub-chapters of chapter two. The paper has been selected using reliable databases, and effort has been made to include the latest articles as far as possible. It covers various sub-chapters, such as potential issue and feasible method to the identified issue. The third chapter includes research methodology that sheds light on the steps and the framework employed to select the suitable components of research methodology. It has been fragmented into different sub-chapter, such as research approach, research method, data selection and collection, sampling, reliability and validity and so forth. All the sub-chapter of this chapter indicates the reason behind selecting the particular method over the alternative method. The fourth chapter includes result and discussion. Like the rest of the chapter, it is also categorised into different sub-chapters. It presents the findings of the study in different themes and the discussion of the study findings supported by the relevant literature. Lastly, the fifth chapter includes a conclusion. This chapter provides a summary of the entire study. It sheds light on the feasible recommendations to the study and research limitations.

The term Brexit refers to the withdrawal of the UK from the European Union and European Atomic Energy Community. Even though the campaign for Brexit has kicked off in early 2015, the UK successfully left the EU on February 1, 2020. Britons and the political parties had contrasting motives for and against withdrawing from the EU. There were certain benefits while staying within the EU, such as they can import and export business goods and services with all the EU nations with zero tariffs. However, after the Brexit, both the UK and EU nations need to follow the relevant custom duties and tariffs to distribute their manufactured goods and services. All the industries in the UK have been affected by Brexit, but the financial industries are the most affected ones. The contribution of the financial industry in the UK economy cannot be overlooked because it contributes seven per cent of the total UK economy. Regardless of its contribution, there has not been much progress in the discussion on the impact of Brexit on the UK financial industry. The emergence of the coronavirus pandemic has further affected the financial industry. The existence of limited research papers on this topic indicates the significance of this research study.

Research methodology is the crucial aspect of the research. In every research, there is the research methodology section to indicate the steps and the framework employed by the researcher to carry out their research study. Through the developed steps, the researcher amasses the required data to conduct the study. While undertaking this study, there has been the utilisation of reliable and fitting research methodology to collect meaningful, factual and appropriate data. The researcher utilises different components of research methodology, such as research method and data selection and collection, to accomplish the study objectives. The selection of it entirely depends on the nature of the study. In this study, the research methodology has been carried out to investigate the impact of Brexit on the financial industry of the UK and to seek possible solutions to the identified issues. There has been the utilisation of different components of research methodology in this study. The deductive research approach was selected over the inductive research approach because this study aims at utilising the secondary material to address the developed research question. The inductive research approach emphasises the creation of new theories instead of using the available ones. Thus, it was discarded from the study. There was the use of a qualitative research method to analyse the amassed data. The sources of the data were evaluated before selecting the data from the targeted sources. In this study, the data has been entirely amassed from the secondary source of the data collection method. The benefits of using this source for the data collection are cheaper, time-saving and so forth. When amassing the data from the secondary source, all the ethical protocols were followed, and only the extracted data was tested for validity and reliability. It was done to boost the research reliability and validity. The study has provided credibility and authenticity to the scholarly authors through the use of full referencing and in-text citation. All the work extracted from the secondary source has been paraphrased, and biasness was eliminated. Furthermore, the sampling criteria has been developed to ensure that the undertaken study does not deviate from its target research objectives and research question.

The key findings of the study were illustrated in themes. The findings of the study were cross-border services, regulation, interest rate and financial job opportunities. It has helped the undertaken study in answering the developed research question and accomplishing the developed research objectives. Passporting right was the main issue discussed on the cross-border service. After the Brexit, passporting right became a concern for the entrepreneurs carrying out their business operations in the UK. Brexit demanded a legitimate passport from the entrepreneurs willing to continue their operation in the UK instead of disrupting their services in the UK. The management of cross-border issue has become complicated because of growing cross-border disputes. After leaving the EU, the border of the UK has been open that subsequently amplifies the cross-border disputes. Brexit has brought a change in the regulatory framework that needs to follow by both the EU nations and the UK to carry out their business operations. The interest rate has continuously plummeted since the talk of Brexit and finally exiting from the EU. The shifting of the financial industries from the UK to other EU regions has reduced the number of financial job opportunities. It, in turn, has subsequently affected the UK economy.

It is vital to address the research question. For that very purpose, all the themes have been drafted accordingly. Brexit has created different issues for all the industries, not only the financial industries of the UK. However, it has created a tremendous impact on the financial industries of the UK than other sectors. The issues brought by Brexit on the financial industry of the UK were passport rights, euro clearing, financial job, equivalence, and interest rates. This impact has created a tremendous problem for the financial industry of the UK. Thus, they have been struggling to shine in the market and compete with the global banks. As the base rate has fallen, its impact has been perceived on the saving rate and mortgage rate and vice-versa. On the grounds of it, the banks of the UK have been struggling to invest their capital in different sectors and constricted their purchasing power. It is estimated that, if the situation is not solved as quickly as possible, most of the banks operating in the UK might enter liquidity. The other issue is on the job cut. Due to the uncertainty in the UK after the Brexit, the global banks and financial organisation have started shifting their operations to other EU regions that have significantly lower job opportunities in the UK, especially in London. With the exit from the EU member states, the UK needs to develop its regulatory legislation. Without it, it becomes difficult to carry out trade and finance with the UK. Nonetheless, the lack of a required regulatory framework has destabilised the financial industry of the UK. Furthermore, after the Brexit, passporting rights have become complicated, and the UK has lost its single market. The loss of passport rights has negatively affected the UK annual turnover.

The study has shed some light on the potential issues currently confronted by the UK financial industry, but still, there are other several areas that have not been yet disclosed. It is primarily because it is a developing story. Despite the setbacks, the financial industries of the UK are taking reasonable steps to provide a glimpse of hope to their stakeholders and shareholders. Even though the study has found issues related to the banks, it still has not been able to discuss the issues confronted by the insurance companies and the small finance organisations. The steps carried out by the financial industries of the UK amidst the Brexit were not easily available in the secondary material.

The feasible steps have been proposed in this study to get rid of the identified issues to the financial industry of the UK. The UK should carry out financial diplomacy to generate financial job opportunities and create a suitable platform for the overseas financial organisation to establish in the UK. The UK and EU member states need to follow each other rules and regulations to lower cross-border disputes. The passporting issues can be resolved by the financial firms through the adaptation of the Swiss Banking Model. It is believed that this model can help to tackle the hindrances related to trade within a single market. The UK should carry out bilateral trade agreements to solve the financial contract issue to assure the investors of their investment in the UK.

Research limitations are the setbacks that derail the research flow. When carrying out the study with the pursuit to identify the potential issues resulting from Brexit in the financial industry, certain limitations were identified. The first limitation was a time constraint. The availability of enough or sufficient time would have helped the researcher to amass the data and information from multiple sources. It would have helped the researcher to cross-examine their sources and information to boost the research reliability and validity. However, this was not the case, because of time constraint the researcher was compelled to terminate the research within the stipulated timeframe. The budget was the second limitation. When the budget is low, the researcher cannot perform the primary research because it requires a higher budget to amass the needed information directly from the targeted candidates. Henceforth, the researcher has garnered the data from the secondary source of data collection method preventing the researcher from knowing the candidate perspective on the impact of Brexit on the financial industry of the UK. When conducting the research, it was felt that there was not sufficient information in the secondary source. The limited secondary data has affected the research finding and narrowed down the research scope. The utilisation of the mixed research method (a blend of both the qualitative and quantitative research methods) would have been appropriate for the study. It is because it would have overcome the shortfall and strengthen the benefits of each method. The necessity of this method was felt at the end of the study on the grounds of the lack of ample information on the secondary data collection sources.

Due to the lack of abundant information, the developed themes were not discussed in detail as promised at the beginning of chapter four. It indicates that the theme developed in the study requires further investigation in the future. For instance, there was not enough information on the interest rate and equivalence themes. As a result, it has prevented the researcher from finding a feasible solution to it. Since it is a developing story and the scholarly researchers have just begun to research it, there is no adequate information on the impact of Brexit on the financial industry of the UK. However, with time, there will be enough information on the impact of Brexit on the UK financial industry that will make the conduction of this study much easier than now. Furthermore, this study can be a guideline and reference for the researcher willing to investigate this field.

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