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Finance Series: investment-and-risk

Brexit and Non-EU banks - Challenges and Opportunities

The UK's decision to leave the EU has wide-ranging ramifications for banks and financial services companies.

Author(s): Professor Barbara Casu Lukac - Cass Business School; Dr Angela Gallo - Cass Business School;

The UK's withdrawal from the European Union, coupled with more stringent regulation at the EU level, present substantial challenges for the operation of multinational banking groups in the EMEA (Europe, Middle East, and Africa) region. In the report, Brexit and non-EU Banks: Challenges and Opportunities the challenges arising from such political and regulatory uncertainty are discussed, focusing particularly on those posed by Brexit for non-EU large multinational banks.

With financial companies seeking to minimise the business consequences, the report looks at two responses to the political and regulatory climate:

  • corporate restructuring that would see operations and staff moved to other financial hubs;
  • the delegation management model, which allows the bank to select a legal entity in the EU for passporting and intermediate parent undertaking (IPU), whilst maintaining an entity in London for other activities.

The report finds that the delegation management model is a viable option, with flexibility being one of its strengths. It could potentially minimise the risk of the loss of human capital expertise and cut the costs related to moving people and functions, whilst avoiding the loss of permanent access to the UK.

This report also considers the challenges posed by Brexit for the City of London. Whilst there are indicators that London will lose some of its financial services business to EU competitors, the City's comparative advantages to Paris and Frankfurt are cause for optimism. These advantages include its time zone, which allows it to trade easily with Asia, the US and Middle East; its joint status with New York as the dominant FX and interest rates trading hub; the strength of local law and regulation; the superior global reputation of UK universities’ teaching in business and finance; and the high degree of capital market integration.

This report represents a first step towards understanding the impact of political risk on multinational banking businesses and their potential strategic response to political uncertainty.

This report was produced by Cass Business School's Centre for Banking Research. It has been compiled by Professor Barbara Casu Lukac and Dr Angela Gallo, with contributions from Professor Rym Ayadi, Professor Thorsten Beck and Dr Marco Boldini. The report was supported from Clare Avery of Cass Consulting.

The report is available for download at the link below.

Attachment(s)
{Brexit and Non-EU Banks - Challenges and Opportunities}{https://www.cass.city.ac.uk/__data/assets/pdf_file/0005/464315/cass-cbr-report-brexit-non-eu-banks-final-version.pdf}
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