Brexit and beyond: The challenges for banks and consultancies

20 November 2019 4 min. read
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As the political drama of Brexit continues to unfold, and the future of the UK’s position in Europe remains unclear, businesses across Europe are still in the dark over what will happen next. Francesco Scarnera, UK CEO at Be Shaping the Future, a financial services advisory, reflects on Brexit’s impact on banks and consultancies.

Whilst many organisations have put plans in place to help mitigate risks associated with Brexit, the future for banks and consultancies is likely to be different from the one that firms imagined only five years ago. Brexit is however not the only change: digital disruption, shifting customer demands, the data economy and increased regulatory pressure are all requiring businesses to change the way they operate.

Battling Brexit

Over the last three years, large incumbent banks have based their contingency plans on a no-deal Brexit, moving back-office operations away from the UK to continental Europe in a bid to safeguard themselves. As a result, European cities, in particular Paris and Frankfurt, have already benefited from the influx of personnel and increased business operations in their cities.

The longer Brexit remains undecided and the future business framework remains unclear, the longer banks must rely on their contingency plans, which can be detrimental to London's future as a financial centre.

Brexit and beyond: The challenges for banks and consultancies

Changes to IR35 rules are also set to add additional pressure to banks and consultancies. Commonly used in the wake of the 2009 financial crisis, IR35 allows businesses to employ workers through an intermediary, for example a limited company. In doing so banks are not required to pay employee taxes and national insurance payments as contractors would take this on themselves, charging a higher fee to compensate. This mutually beneficial arrangement gave banks greater flexibility when employing skilled staff and meant contractors could charge higher fees.

However upcoming changes, which effectively close this loophole and place limits on what contractors can and can’t do, means that we can expect a large number or redundancies as banks will no longer be able to justify having so many staff on their payroll. Not only will this hurt banks’ talent pool, it will likely push specialist talent away from London and towards Paris and Frankfurt instead.

It’s not all doom and gloom, however. London has long maintained its position as a leading financial hub, and its strengths won’t disappear overnight. It is viewed by the rest of the world as a centre for innovation supported by early adopters, and has unparalleled capital markets expertise. As such, London will still have a bright future should it continue to focus on these core strengths post-Brexit.

Changing horizons

Digital disruption and the move away from legacy systems to ensure operational efficiency has been on banks’ agenda long before Brexit, and these areas need to remain a focus if banks want to compete. Historically, large incumbent banks have relied on their size and dominance to demand market share and retain customers, but today’s customers are rapidly adopting technology to achieve the lifestyles they want, and new market entrants are succeeding in supporting this goal.

“The future for banks and consultancies is likely to be different from the one that firms imagined only five years ago.”
– Francesco Scarnera, UK CEO at Be Shaping the Future

The reality is that customers no longer want a transactional relationship with their bank. Firms need to be thinking beyond traditional services, and instead should consider how they can use data to integrate with other service providers (such as insurers, retailers, etc.) in order to provide customers with a ‘lifestyle marketplace’ that satisfies all their needs and keeps them satisfied.

The future of consultancy

Just like the banks, consulting firms also need to adapt to the changing business environment. Regardless of what happens with Brexit, if large firms fail to evolve to meet clients’ needs, their future will be bleak.

Consultancies need to adopt a more agile approach, which Be embraces, offering clients the specialist knowledge they need to ensure they can compete in their respective markets, which in most cases are likely to be competitive. Furthermore, as pressure continues to mount on the bottom line and the need for change increases, clients will not only be looking for a consultancy that offers an exceptional level of expertise and service, but also a solid – and fast – return on investment.

Even if the UK loses its mantle as the world’s regulatory hub post-Brexit, its robust infrastructure, innovative culture and recognition of the importance of trade will give many UK-based consultancies an edge over the competition. As such, if consultancies are able to adopt a nimble, open-minded approach that encompasses both client and customer expectations and is open to technological innovation, they can look forward to a bright future, whatever it may hold.