The number of jobs lost in the City of London due to the UK leaving the European Union could be dwarfed by the impact of fintech in the financial services industry.
Axel Pierron, co-founder and managing director at Opimas said in a report, Brexit: Navigating the Political Uncertainties, that the consultancy estimates that 90,000 jobs will have disappeared in global asset management by 2025 due to the increased adoption of artificial intelligence.
“Therefore, it should be expected that job losses in the UK due to Brexit will not translate to an equal amount of job creation on the continent,” he added. “The Brexit-imposed review of current operations and business mix could turn into a great opportunity for financial institutions to embrace sophisticated technology solutions and start afresh.”
Pierron continued that new technologies such as robotic process automation, machine learning, and artificial intelligence could lead to increased efficiencies and a leaner operational infrastructure. “In addition, the investment made in these technologies will be mutualized across multiple jurisdictions and would allow institutions to minimize the operational cost of Brexit,” he added.
He noted that the number of job losses will depend on the deal that the UK negotiates with the EU. However the UK government has not published a position paper on financial services detailing the deal that it would like to achieve.
Adrian Whelan, senior vice president at Brown Brothers Harriman said on the US bank’s On the Regs blog that the European Commission published seven technical notices at the start of last month related to banking and finance. The seven notices cover MiFID firms; banking and payment services; post-trade financial services; asset management; credit rating agencies; insurance and reinsurance; and statutory audit. The notices assume a hard Brexit where the UK leaves the European Union on 29 March 2019 without a trade deal being agreed.
Whelan said: “Regardless of the ebbs and flows of politics and the negotiations to date, some form of compromise is still very much a possibility. We maintain that even after the publication of these notices, on top of months of deliberation, it’s still unclear whether we will ultimately see a soft, medium, or hard Brexit.”
Pierron noted that the UK government claims it wants a deal similar to the one concluded between Canada and the EU, but with the addition of financial services. However EU representatives and political leaders have stressed that the UK cannot have special access to the trading bloc for certain sectors without accepting the freedom of movement for goods, services, capital and people.
He continued that if a significant portion of asset managers have to relocate to a member state that remains in the EU because the delegation rule is changed, then sellside firms will have to follow their clients. The third-party delegation rule allows for a fund to be domiciled in the EU while the investment decisions are made elsewhere.
The report said that delegation could be prohibited outside the EU in the worst-case scenario, although this is unlikely as it would antagonize asset managers in the US and Asia.
“Numerous European cities from Paris to Frankfurt and Milan are salivating at the prospect of syphoning asset management businesses away from London,” added Pierron. “The good old days when it was a “no-brainer” to choose London as the location to launch new asset management firms are certainly over.”