Your IndustryJun 27 2017

Bank warns Brexit will send financial services bill higher

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by
Bank warns Brexit will send financial services bill higher

The Bank of England has warned that Britain’s exit from the European Union could lead to the disruption of the provision of financial services in the UK.

It has also warned that British businesses and households could face a higher cost for the provision of financial services because of Brexit.

In its Financial Stability Report, published today (27 June), the Bank of England has said it will identify and monitor the risks to Britain’s economy so it can prepare and mitigate for them.

The report cited a number of ways in which Brexit could be disruptive for Britain’s financial services sector.

For example it said the flow of new banking and insurance services to UK customers could be disrupted if EEA firms are unable to operate in the United Kingdom in the same manner as they do today.

Around 10 per cent of the outstanding stock of loans to private non-financial corporations in the United Kingdom is extended by UK branches of EEA banks.

It also warned that fragmentation could lead to higher costs and greater risks for EU and UK companies and households.

For example, the report said the cost of asset management could increase following Brexit.

The report said: “Delegation of asset management across borders is a well-established practice.

“If asset management were to fragment between the United Kingdom and Europe, material economies of scale and scope that are currently achieved by pooling of funds and their management would be reduced.”

The Bank of England also pointed out that 7 per cent of general insurance contracts undertaken in the United Kingdom and 3 per cent of life insurance contracts are written by EEA insurers.

As well as disrupting new business from these providers, fragmentation could require the existing contracts to be transferred to a UK-authorised firm in order to address any legal uncertainties.

The Bank of England also said Brexit could have macroeconomic effects by affecting both the supply side and demand side of the British economy.

Britain voted to leave the European Union on 23 June 2016. A two year period of negotiations is underway between the UK and the EU over the terms of Britain's exit.

damian.fantato@ft.com