Asset management will be among the financial services hardest hit by Brexit, the London School of Economics and Political Science warns.
With around £6bn, or 25 per cent, of UK asset management revenues that come from EU-related business set to be directly affected by Brexit, firms should look to open offices across Europe, Simeon Djankov, executive director of the financial markets group at LSE, says.
“UK-based asset managers may need to set up subsidiaries across Europe to continue to manage investment funds domiciled there in an efficient manner,” he says.
“As a result, investment activities may become more expensive and complex for clients. About a third to half of this EU-related business, £2-3bn, may look for a new home.”
Aberdeen Asset Management and Morgan have already been looking for new headquarters in the EU, Djankov says, but adds it is not yet clear how many jobs will be moved from London.
Banking will be the most affected among financial services, followed by market infrastructure, asset management and insurance and reinsurance services, Djankov says, with Brexit uncertainty “a major deterrent to new business in the City”.
In his discussion paper The City of London after Brexit, Djankov points out around £25bn in banking revenues comes from the EU, 23 per cent of the total retail and business banking. With banks’ operating costs set to be pushed up smaller banking institutions may leave the City, he adds.
“Brexit will have negative effects for the City of London. The analysis here presents preliminary results to suggest that such effects will be substantial. The UK Government’s reaction to leaving the single market may be to revisit some of its financial regulation in an effort to bring more investment. But such a policy move may trigger a regulatory race with other major financial markets, to the detriment of the global financial system. In the meantime, uncertainty surrounding the transition from the European Union and the possible changes in the regulatory stance of the UK government will be deterrents to new business.”