How to Manage Banking After Brexit
While the United Kingdom made its departure from the European Union official on 31 January, there are still details to refine as it continues to define its relationship with its former partners. What is the story with banking after Brexit? We’ve decided to examine what we currently know, and have some suggestions about how you can plan for possible changes
First, is my money safe in the bank after Brexit?
This may be your principal concern when considering how to manage your money. While the United Kingdom is formally out of the European Union, the country’s commercial ties with the EU will continue until at least the end of the year as they continue to negotiate issues.
In the meantime, here are some things to know about your current account back in the United Kingdom. The Financial Services Compensation Scheme (FSCS) covers all British current and savings accounts, as well as any cash ISAs you may have in credit unions, banks or building societies. The Bank of England revised the deposit guarantee upward to £85,000 per UK-regulated financial institution following the pound’s fall after the initial Brexit referendum results in early 2017.
There are some exceptions to this rule, such as if you work with a foreign bank, and there are temporary covers, such as the £1 million significant life event protection to cover an inheritance, redundancy, etc. should your savings provider go bankrupt. You must also understand that if you have accounts in sister banks that belong to the same financial institution, those accounts would only have the £85,000 cover. Even if you feel more at ease with this guarantee and still would prefer to have your savings in cash, an option would be to put your savings into bonds with a guaranteed fixed rate to maintain stability if the pound depreciates in the case of no-deal .
Banks leaving London after Brexit
The uncertainty over what will happen after the end of the transition period is particularly worrisome for the British financial services industry, as its exports to the EU are worth £26 billion a year, making the bloc by far its largest market. The bargaining chip that both sides are looking at is the issue of equivalence, which is being aligned with EU rules to retain access to EU markets. While the UK is currently technically equivalent to EU regulations due to its membership until last month, it appears that it will not be a given after the end of the transition period.
Banking industry body UK Finance Chief Executive Stephen Jones told the House of Lords that:”[i]f an equivalence designation can be granted, it is likely, I would suggest, to be temporary in almost every case, and it is likely to be capable theoretically of being withdrawn at short notice.” What makes this so curious? Banking is a more critical sector to the UK than the EU, as noted in the testimony from Lloyd’s of London insurance market chairman Bruce Carnegie-Brown in his declaration to the House of Lords.
As such, it’s in the UK’s best interest to maintain technical equivalence with the EU to continue having access to their financial markets. Banks have started to open hubs in EU countries to retain access to the single market, and the short-term hit to the British economy will be between £3 and 5 billion, according to Jones. Even depending on the nature of the deal, we’ll still start to see the impact of these changes in one of the most crucial British sectors.
What would the banking regulation after Brexit entail?
Equivalence is just one of the ways the United Kingdom’s financial markets could still hold onto some access to Europe. How could it happen despite expressing its intention to leave the single market for services, effectively ending its former ability to passport? The other would be a comprehensive trade deal with an extensive section discussing financial services. Yet, given the uncertainty, it appears that most of the conversation is discussing banking equivalence.
In equivalence, the UK financial and banking regulation after Brexit would have to stay aligned with those of the European Economic Area mostly. However, it would be temporary and could be cancelled in as little as 30 days. Stephen Jones warned that there could be trade-offs with other sectors or conditions to getting the equivalence activated after the end of the transitional period.
What should you do when it comes to banks after Brexit?
If you’re concerned about the Bank of England interest rate after Brexit or EU bank accounts after Brexit, there are some non-UK options available to you. You can open a bank account abroad, and another alternative is an offshore bank account. Why consider the offshore option? That’s because EU bank accounts after Brexit, except those created explicitly for non-residents, will have residency restrictions imposed. While some EU banks will let you open an account with a passport, you may have to maintain a minimum deposit threshold or pay for a policy not to get charged any additional fees.
Plus, offshore accounts in a reputable jurisdiction will allow you to protect yourself from potential instability that could come from Brexit as the account would benefit from a stable exchange rate. Many offshore banks also allow you to hold a balance in multiple currencies. If you’re interested in opening an offshore bank account, there are some criteria you should keep in mind when picking the bank for you. Fortunately, our offshore banking experts at Europe Emirates Group can guide you through the process and maximise your portfolio to protect you from a no-deal outcome. Get in touch with us today.