Brexit costs of £4b for financial services ‘a drop in the ocean’, says EY

Brexit has cost major UK Financial Services firms, including insurers and insurance brokers, almost £4 billion so far, according to data analysis by professional services firm EY.

A large proportion of this total, £2.6 billion, was paid out in capital injections to establish and develop new non-UK headquarters, plus £1.3 billion to relocate staff and operations, pay for legal advice and ensure contingency provisions.

While the sum is already large, EY suggested that real costs are higher as only 13 of the 222 firms monitored by its Financial Services Brexit Tracker put a figure on the direct financial impact of Brexit as of the 31 May 2019.

The report found that in the past three months the number of companies revealing the tangible impact of Brexit on their business has tripled.

EY’s analysis showed the number of planned jobs (7,000) and assets (£1 trillion) moves remained flat from the last quarter, which the report said “reflected that firms paused or slowed down their Brexit preparations once the extension to October was announced”.

The report said that “many firms appear reluctant to make the final decision to move until they absolutely have to”.

The impact of Brexit on the economy has hit the financial services sector in other ways as demand for credit and low interest rates has slowed undermining revenues, with 13 companies in the tracker reporting financial damage such as share price falls, lower profits, dividend cuts, a slowdown in lending, loss of customers and reduced capital market activities. However, the firms did not provide figures for these.

More than half, 55 percent, of the companies monitored in the tracker (78 out of 143) have made public announcements about moving staff and/or operations out of the UK. EY said that of the 42 percent (60 out of 143) which have not commented, the majority are large European or US-focused Firms, which already have an established European footprint, or UK-focused firms that do not have a large European customer base.

For companies that have decided to make the move beyond the UK’s borders, Dublin remains the most popular European city for relocation. The report said that 29 companies “are considering or have confirmed the relocation of operations and/or staff to the Irish capital”. Another contender is challenging Dublin for top relocation spot. In the last three months, Luxembourg has seen the largest increase in companies choosing to relocate staff and operations there, with the total confirmed to date rising from 19 to 23.

Omar Ali, UK Financial Services leader at EY, said: “So far, only a small proportion of the largest, listed firms have put a number on potential costs, which means this number is likely to be a drop in the ocean as firms prepare to do business post-Brexit. The financial impact of Brexit is beginning to fall to the bottom line, and firms are now making a direct link between financial performance and the tangible commercial impacts of Brexit.

“Capital deployed for supporting new non-UK headquarters is value which is not being returned to shareholders or reinvested in UK businesses. Over time some of this capital may flow back to the UK, but currently is a net loss for our economy.

“The past three months have seen most firms to some extent pause their Brexit planning with both planned jobs and assets moves remaining flat. However, in the last few weeks we have seen some firms restarting their programmes and we expect preparation activity for a no-deal to increase markedly throughout the summer.”