Brexit is creating complexity within the UK financial services ecosystem, with the Corporate and Investment Banking (CIB) sector most impacted.
Forecasted impacts of Brexit
10-15% UK Corporate and Investment Banking (CIB) Revenue decrease by 2020, due to its international context and the main players being global with c65% comprising cross-border business. Local to Global financial institutions will be the most impacted as a result of their international operation and the ease of clients moving business to the EU.
60-90bps UK CIB ROE decrease by 2020, as a result of the incremental operational & capital costs, and inefficiencies associated with Brexit, combined with revenue decreasing. Local to Global institutions will encounter the largest drop in ROE.
Factor of 4 UK CIB impacted, compared to Retail Banking : due it being largely domestic based in nature, Retail Banking will be comparatively unscathed as a result of Brexit – the main driver being falling UK economic performance (GDP). Revenue and ROE decreases in CIB will be 4 times more than Retail Banking. Asset & Wealth Management and Insurance sectors will be impacted as well (more than Retail Banking), but to a lesser extent than CIB.
CIBs need to deploy a Day 2 ready Agile Operating Model with 3 Remediation Steps
Enhanced client service
- Undergo a client rationalisation exercise to assess which clients (and segments within that) should be prioritised post-Brexit
- Evaluate current level of client offering and mobilisation (including digital offering and most efficient trading entities for clients)
- Gauge if the global coverage plan needs to be revised , including possible mutualisation opportunities across divisions (e.g. CIB and Wealth Management)
Simplified Entity Structure
- Undertake a legal entity rationalisation and consider alternative entity structures that ensure long-term continuity of business within all eventualities (subsidiaries must meet prudential requirements on a standalone basis)
- Assess if favouring an EU entity (dependent on client mix & booking model) will allow centralised risk management and improved efficiency
Optimised Booking model
- Day 1 back-to-back booking will lead to capital inefficiencies via increased inter/intra company transactions. Possible Day 1 organisational inefficiencies include fragmentation of market and credit risk management, and duplication of the governance, infrastructure and financial resources which underpin it
- Review Day 2 mid-long term booking model options (utilising digital where applicable) that cater to post-Brexit and global regulations, business needs and increase agility (e.g. a localised entity specific risk management model)