Brexit is already making itself felt in the financial sector
Although the Brexit agreement has only been in force for a short time, it has already had an impact on the financial sector. "For decades, London was considered the centre for cross-border equity trading," says Dr Volker Schmidt, Senior Portfolio Manager at Ethenea Independent Investors. "That seems to have come to an end with Brexit and the end of the transition period." The Aquis Exchange, the second-largest trading platform for European equities in the UK, reported that 99.6 percent of all trades in early January were cleared through its twin platform in Paris. The same was reported by Cboe Global Markets, Inc. (formerly Chicago Board Options Exchange), says the expert. According to Cboe information, about 90 per cent of EU equity trading was conducted in Amsterdam; in the previous year, almost the entire volume had been handled in London. "In total, on the first trading day of the new year alone, around six billion euros were shifted from London to continental Europe," says Schmidt. "Not only is the British Exchequer missing out on tax revenue as a result, but it is also reasonable to assume that, in the future, companies will prefer to go public in the EU in order to benefit from smooth and active trading conditions." This clearly shows that London has already lost its status as a European financial centre. Schmidt expects that this process is probably irreversible.
Other sectors impacted
No tariffs on goods in bilateral trade between the UK and the EU - that was one of the main reasons for the Brexit agreement. However, a few weeks post-Brexit, the problems are becoming increasingly apparent. "For one thing, small retailers and freight companies in particular are complaining about the increasing bureaucracy and paperwork involved," says Ethenea's expert. "There are reports of tailbacks at external borders, trucks being turned away, and collapsing supply chains. Many freight companies have suspended their deliveries for the time being." But even large corporations seem to have been caught off guard by the uncertainties and are not adequately prepared. "In order for goods to qualify for duty-free treatment, it must be proven that they originate in the EU or the UK," explains Schmidt. However, if they were imported through the UK and then exported to the EU (with little or no further processing), customs duty would apply. Marks & Spencer, for example, has its "Percy Pig" brand of sweets produced by Katjes in Germany, imports them to the UK and then also distributes them to Ireland. From now on, customs duties would be incurred. "Therefore, in the future, companies will be faced with the choice of either paying the customs duties or converting their supply chains so that warehouses can be supplied directly without having to involve British facilities. The latter will pose major challenges for small and medium-sized companies in particular," states Schmidt.
Voting rights withdrawn from investors
On 11 March 2019, airlines Ryanair and Wizzair announced that in the event of Brexit they would withdraw voting rights from their British shareholders. "At the beginning of this year, they got serious and actually implemented this," says Schmidt. The background to this was the regulation according to which flights within the EU could only be operated by airlines that were majority-owned by EU shareholders or at least under their control. In a worst-case scenario, flight bans would be the result. Although Ryanair is based in Ireland, a large number of its shareholders, mainly institutional investors and funds, come from Great Britain. The same would apply to Wizzair, which is based in Hungary, says the Ethenea expert. "These are already the first effects and there will be many more, some of them completely surprising. We therefore consider it prudent to be flexible and diversified in all areas in order to be prepared for further developments.”
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