EU Scenarios and the UK Financial Centre

Oliver Wyman Research

Oliver Wyman undertook analysis for TheCityUK EU research program, to help articulate the challenges to the UK of different EU-exit scenarios.

The research discovered that over 75% of European capital markets and investment banking revenue was generated in the UK, and that in these markets, the UK and the rest of Europe are mutually dependent. 55% of UK-based revenues are paid by European clients to the investment banking industry (i.e. corporates, financial institutions and investors) outside the UK. But the UK is also crucial for clients across Europe. That same UK-based revenue represents 65% of all business generated by European clients outside of the UK. The UK is the main financial centre for Europe.

The research further highlighted that changes in the UK’s EU status would threaten this valuable role, with most scenarios making it harder to serve this client base. The research concluded that since the advent of the single market, unification of financial services rule-making across Europe has largely advantaged the UK as a financial centre, and that any exit scenario would be damaging to the UK’s financial services industry.

Even in the case of a complete UK exit from the EU not all financial centre activity would be lost. But disturbance of the ability to serve the non-domestic client base would result in significant erosion and, while some of this activity would migrate to financial centres elsewhere in Europe, the research concluded that the main impact for Europe would be a loss of access to long-term capital to finance growth. Fragmentation of liquidity and issuer-investor touch points would diminish European markets overall.

Oliver Wyman’s analysis was presented by Nick Studer, Managing Partner, Financial Services, at TheCityUK hosted event A Critical Analysis of the Economic Case for EU Membership and the Legal Implications of Other Membership Scenarios on 28th April 2014 in London, and is available for download here.

You can see a video about the event here.

Following this research, which was completed in 2013, TheCityUK drafted a submission to the Balance of Competencies Assessment being carried out by Her Majesty’s Treasury. The resulting three-page memo to the Treasury from CityUK which includes Oliver Wyman’s findings can be downloaded here. (With permission from the CityUK.)