by Tom Mcneila, Senior Marketing Manager, IPC
Technology implications for financial firms – particularly those throughout Europe – are that Brexit will drive a strengthening of the exchange/co-location model that has evolved over the last decade-enabling technology to be moved into jurisdictions where business needs to take place. Additionally, to support the co-location model, IPC expects firms to move to bigger, better and faster data networking across geographies. Here’s why…
As the world accepts the new reality that ramifications from Brexit will move forward in some unknown format in an unknown timeframe, the impact of Brexit on the capital markets becomes the next big question. Some trends have already begun to emerge. Financial organizations of all sizes are taking steps to ensure they will be ready when the United Kingdom leaves the European Economic Area (EEA).
The three most important trends since the Brexit vote are
- Capital market participants are implementing new technology to drive efficiencies. Cloud-based technologies have gone from something on the five-year plan to something being sought and implemented now with an emphasis on integration with existing systems.
- Partnering is no longer a four-letter word as capital market participants look for assistance to navigate these unchartered waters.
- A new location or multiple locations could emerge as the new ‘Financial Hub’ of Europe as firms move operations to within the EEA.
Brexit as an Agent of Change
One factor that has become apparent is that firms are not sitting idle waiting to see what the ‘Brexit effect’ will be. The current spend and planned spend by financial services firms on technology saw a significant increase after the Brexit vote. Although spend on regulatory compliance technology remains dominant, Brexit has forced firms to strategize about what it will mean to their operations should the United Kingdom lose its passport to the EEA.
The change will be gradual, as an estimated 400,000 people are employed in financial services in London alone. Firms, however, recognize the need to have operations based in the EEA, and are considering many factors – such as political structure, lifestyle, infrastructure, proximity to the United States and tax systems – when determining the best choice for locations. One theory gaining traction among market participants is that multiple locations will take on the role, each taking on a portion of the activity that occurs in London today. Financial firms may ‘scatter’ their operations across Europe to manage risk and take advantage of the distinct assets of European cities.
Today, technology is essential for successful trading. It is becoming even more important given the col-location model, the need for more powerful data networking and the likelihood of an even more dispersed financial community in a post-Brexit world.
In IPC’s white paper, we discuss in greater detail Brexit and its potential impact on the Capital Markets. We also look at possible new locations where firms will place operations and the advantages and disadvantages of each. Download it now.