Brexit and Financial Services

The realization of Brexit will significantly affect the financial services between the European Union (EU) and the United Kingdom (UK). This effect is due to the fact that London is the global financial center of the world and the current passport regime on which EU-UK relations are based will end. During the transition period, it may be possible for the EU to make a Canadian type Free Trade Agreement (FTA) that includes financial services. Or it could be another model that regulates bilateral economic relations between the UK and the EU. Otherwise, once the transition period ends, the UK will become a third country. Thus, financial services trade between the EU and the UK will be handled within the framework of the rules of the World Trade Organization (WTO) General Agreement on Services Trade (GATS). This will cause financial firms to migrate from London to the EU-27 and this process has already started. For certain financial services, UK companies may then be subject to the EU third country Equivalence regime. The third country Equivalence regime means that for UK-based financial institutions access to the EU Single Market will be severely restricted. Financial services that will be most affected will be banking, market infrastructure, asset management, insurance and reinsurance, respectively. Brexit will also bring fragmentation in financial markets. Although it is accepted that London's place as a financial center will not change in a short period of time, it seems that four important cities will host the EU 27 wholesale markets. These cities are Frankfurt, Paris, Dublin and Amsterdam.