The past several weeks have put Brexit under the spotlight once again. Not only is the negotiations period narrowing, but as of recently, concerns had been rising over a new bill that will enable the UK government to make changes to the legally binding Withdrawal Agreement it previously signed with the EU earlier in 2020.
The pound had been under pressure, and now the international community alongside the financial industry are starting to consider bad outcomes, in the absence of an agreement between the two parties, or an extension for the negotiation.
UK and EU reach an impasse on the Withdrawal Agreement
The controversial Internal Market Bill was passed in the Commons by 340 votes to 263, however it still faces further examination by MPs and potential efforts by opponents to alter it. This shows divided UK politics continues to be when it comes to foreign policy and Brexit.
Because the European Union already mentioned that passing the legislation will put a dent on further negotiations and imposed a deadline until the end of September for the UK to make its case on the bill, the next two weeks will be very difficult in terms of finding common ground and financial market uncertainties.
No-deal Brexit looms on the financial industry
Since the developments had not been favored, financial markets had been losing momentum, in particular assets related to the UK. The British Pound eased from 1.34 to 1.28 against the US dollar, while the FTSE 100 continued to weaken towards 6,000, after months of underperformance against other major stock market indices.
Traders working with different CFD trading providers had been active on these instruments to protect themselves from any downside, or to take advance of increased market volatility. Until there won’t be a light at the end of the tunnel, we should expect financial markets to be cautious. So far, there is no common ground between the UK and the EU, but is there any possibility that other things are at stake.
Brexit and Its Impacts on the financial services industry
There are many ways the financial services industry in the UK will be impacted by Brexit, considering it is responsible for 12% of the national GDP. One of the key areas under the radar has to do with regulation.
Since financial and banking rules are set by global regulators, once Britain leaves, uncertainty will prevail on which regulatory standards are higher – those in the UK or international. A reduction in overall banking stability and major changes to a regulatory framework that had been in place for the past 40 years won’t be suited for the financial industry.
Secondly, the City, currently one of the top financial centers in the world, could face increased competition from European financial centers, where the EU supervision might turn out to be more trusted. Also, since a lot of skilled individuals are working in the City, new requirements for visas and work permits will no longer incentivise individuals to pursue a career there.
Ultimately, it can impact cross border trade, as many experts believe Brexit will contribute to a reduction in exports of financial services into the EU. The stakes are very high and all these critical aspects will need to be dealt with properly to avoid major disruptions in the UK, as well as in the EU.