What Brexit Really Means For The Capital Markets

The economic, political and cultural fallout from Brexit will change the way counterparties in the capital markets do business. Here’s why.

Much has been written about the impact of Brexit on financial markets. Although bank share prices have since recovered and markets remain resilient, consequences for the international banking system run deeper than asset price fluctuations and macroeconomic trends. Expect to see corporate restructuring, cross-border tax wars and the fragmentation of regulatory frameworks.

Back in the heady pre-Brexit days of 2015, the EU mooted the idea of a capital markets union. That project will surely flounder without the UK. To retain single market access, Britain would have to retain much EU legislation, but it seems likely that ‘passporting’ – which enables London’s banks to deal with clients across Europe – could become defunct post-Brexit.

London is where the world meets to do business. It’s a deep well of global capital where international banks access 27 other EU countries. Now that status is under threat. Nobody knows what happens next, but banks have already begun to diversify their capital markets operations across European financial centres. Issuers are doing the same, engaging with an ever-increasing pool of investors and dealers to avoid over-reliance on London.

The fragmentation of banking operations and the regulatory environment is bound to increase business overheads. Brexit could accelerate downsizing caused by the march of automation and concerns over volatility stemming from long-tail political events. Uncertainty may swell trading revenues in the short term, but it’s bad for primary markets issuance in the long run.

It’s fair to say that a retrenchment of globalisation is underway. Britain’s departure from the EU, Trump’s love affair with protectionism, and the fraught political discourse accompanying elections across Europe all point towards a profound change in the political atmosphere.

There are second-order cultural effects at play in the wake of Brexit, too. Everywhere you look, nation states are pausing to consider their relationship with the outside world. The populist wave sweeping across the Atlantic invites us to question assumptions regarding globalisation, free trade and political cooperation.

These headwinds will fundamentally change the way counterparties do business in the capital markets. Banks will cut costs and retreat to their core markets and expertise. Governments will become more protective over domestic financial institutions and banking will become even more politicised. Taxation will become a contentious issue, with countries seeking to lure capital away from London through progressive regimes. Regulation will become more fragmented and complex.

Here at Origin, we’ve thought long and hard about the world we want to live in. We’ve created a platform that helps issuers and dealers in the capital markets collaborate effortlessly and efficiently, whatever the political and economic backdrop.

We’re connecting dealers and issuers in the primary marketplace for the first time, reducing friction and increasing efficiency with the help of technology. Over 30 major institutions have trusted us with their business so far, so we must be doing something right.

In a brave new world defined by fragmentation, we are bringing counterparties together to do business in the capital markets. Why don’t you join us?

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This article was created in association with Origin Markets, a London-based startup who are directly connecting dealers and issuers in the primary marketplace for the first time. 

Edward Playfair