Brexit hasn’t happened yet but it’s already shrinking the United Kingdom’s financial services industry.
Banks and other financial companies have shifted at least £800 billion ($1 trillion) worth of assets out of the country and into the European Union because of Brexit, EY said in a report published Monday.
Many banks have set up new offices elsewhere in the European Union to safeguard their regional operations after Brexit, which means they also have to move substantial assets there to satisfy EU regulators. Other firms are moving assets to protect clients against market volatility and sudden changes in regulation.
The consultancy said the figure represented roughly 10% of the total assets of the UK banking sector, and was a “conservative estimate” because some banks have not yet revealed their contingency plans.
“Our numbers only reflect the moves that have been announced publicly,” said Omar Ali, head of financial services at EY. “We know that behind the scenes firms are continuing to plan for a ‘no deal’ scenario.”
EY has tracked 222 of the biggest UK financial services companies since the Brexit referendum in June 2016.
Britain is scheduled to leave the European Union in just 81 days, but Prime Minister Theresa May still needs to win support in the UK parliament for the divorce deal she struck with the rest of the European Union.
Parliament is due to vote on the deal next week. If May ultimately fails to push the agreement through, the chances of the country crashing out of the European Union without a deal will soar.
The Bank of England said the fallout from that scenario would be worse than the 2008 financial crisis.
For financial institutions, a no-deal Brexit would be a nightmare. The country’s agreements with EU regulators would cease to exist and banks would find themselves in a legal vacuum, meaning they would be unable to continue doing some of their business across the bloc.
While the European Union has said it will implement some steps to avoid a complete meltdown, it said its contingency plan is only a short-term solution aimed at protecting its own interests.
“Financial services firms have no choice but to continue preparing on the basis of a ‘no deal’ scenario,” Ali said.
EY said that the companies it tracks have already created around 2,000 new jobs elsewhere in the European Union in response to Brexit.
Deutsche Bank (DB), Goldman Sachs (GS) and Citi (C) have already moved parts of their business out of the United Kingdom. Dublin, Luxembourg, Frankfurt and Paris were the most popular destinations.
EY said financial companies were likely to move more assets and create more jobs in other European cities over the coming weeks. “The closer we get to March 29 without a deal, the more assets will be transferred and headcount hired locally or relocated,” Ali added.
London has been Europe’s undisputed financial capital for decades, and is home to the international headquarters of dozens of global banks.
The financial services industry employs 2.2 million people across the country, and contributes 12.5% of GDP. It generates £72 billion ($100 billion) in tax revenue each year, according to the City of London Corporation.
The UK economy has already suffered from Brexit. Inflation spiked and consumer confidence dropped, hurting the country’s retail sector. Business investment has fallen dramatically, as companies put plans on hold because of the uncertainty. Major manufacturers, including Airbus, have warned they may have to quit the United Kingdom if there’s a no-deal Brexit.
German engineering group Schaeffler is closing two plants in the United Kingdom because of the uncertainty.
The latest evidence of the pain came on Monday, when the UK Society of Motor Manufacturers and Traders said new car registrations in the country fell 6.8% in 2018. It was the second consecutive year of declines.
Correction: An earlier version of this story incorrectly stated the value of assets moving in pounds.