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What Does the Brexit Trade Deal Mean for Asset Finance?

After nearly five decades, Britain has officially left the EU, breathing a new chapter for its future with Europe. This has been a tumultuous road for both parties. The divisive vote to remain in the EU in 2016 revealed more than half of British voters wanting to leave the European Union. However, the UK and EU announced a new free trade deal on Christmas Eve that went into effect on 1 January 2021. The British government said in the negotiations they reached a “zero-tariff zero-quota deal.” Now outside of the EU, the future and influence of Britain’s asset finance industry are in question. The financial services sector has the biggest trade surplus of any industry in the UK, with exports in 2019 of £79 billion, equivalent to $106 billion. So, how will the Brexit Trade Deal affect the asset finance industry?

1. Does the trade deal include asset finance and financial services?

Both the UK and EU agreed during negotiations to discuss financial services later in 2021. The UK government said on Dec. 24 that the agreement includes provisions to protect trade in services, including financial services.

As the trade agreement explains, “This will provide many U.K. service suppliers with legal guarantees that they will not face barriers to trade when selling into the EU and will support the mobility of U.K. professionals who will continue to do business across the EU.”

As of Jan. 1, the UK will lose all the rights and obligations it has to EU’s single market. The EU has agreed to temporarily grant equivalence rights to the UK. This will allow financial services firms in the UK to continue serving customers and conduct financial activities in the EU. Specifically, London, which is a global financial hub, with trillions of dollars flowing through the capital every day.

2. How will the Brexit Trade Deal affect the asset finance industry?

Certainly, the agreement between both parties will tremendously ease the tensions on both sides of the aisle. Financial services firms apart of the EU have moved their business out of the UK. As a result, these financial services firms have declared they are moving £1.2 trillion of assets from the UK to the rest of the Europe. Moreover, this has shifted more than 7,500 employees outside of the UK.

Looking ahead

Following the announcement of the Brexit Trade Deal, the Association for Financial Markets in Europe made a statement. Bob Wigley, chair of UK Finance, remarked, “It will be important to build on the foundations of this trade deal by strengthening arrangements for future trade in financial services. This can be achieved by building on the longstanding regulatory dialogue and supervisory cooperation between UK and EU authorities and reaching agreements on all appropriate equivalence determinations as soon as possible.”

The UK and the EU have pledged to negotiate a “memorandum of understanding” by March 2021. In this memorandum, both parties will sort out the rules under which financial players can operate in each other’s markets. The EU wants to take all business and jobs out of the UK. Meanwhile, London wants to keep its financial power without having to abide by EU regulations. As of now, both parties aren’t guaranteeing they will reach a deal, but only pledging to negotiate on trying to strike a deal. However, with the long negotiations of the Brexit trade deal out of the way, in theory, this should make the memorandum in March easier for the two sides’ respective interests.

About LTi Technology Solutions

LTi has operated in North America and the UK for nearly 30 years and has a local market presence across the UK. We have an unparalleled customer base and leadership across the spectrum of leading asset finance solutions. We pride ourselves as a market leader, offering asset finance solutions to the most important banks, independents, and captives. Contact us today to learn more on how ASPIRE in the LTiCloud can streamline your business!