The Brexit vote will affect finance more than most other industries but will it affect the CFA Program?
Financial markets and asset prices were surprised when Britons voted by a narrow margin to leave the European monetary union. The pound immediately plunged against the dollar and stock markets tumbled globally. Beyond the knee-jerk reaction to the exit vote, are there longer-term consequences to the financial industry and the CFA Program?
What the Brexit Vote Means to the Global Economy
There’s probably no escaping a recession for the U.K. even if just a small one. Regardless of your opinion to the Brexit vote, it’s hard to argue that the uncertainty and trade process that will need to be negotiated will weigh on the economy. Exporters and the tourism industry may see a slight bump in activity but most other industries will likely experience at least a quarter or two of weak sales as business figures out where demand will be going forward. Sentiment guides the business cycle and business owners are just too unsure of how things will pan out to be optimistic.
The U.K. will need to renegotiate trade deals and this is where it could get ugly. A deal with most individual countries should not be too difficult but the EU could play hardball. Merkel is already saying that a deal must come with some agreement on open migration, one of the key reasons why Britons voted to leave. Since the U.K. accounts for a small fraction of global trade, the Brexit likely won’t impact the global economy much though a pro-longed negotiation with the EU could make things worse for the Kingdom.
I’m not emotionally involved in the myriad of reasons Britons voted to leave the European Union. Brexit seems it will be inconsequential for the global economy but undeniably rough on the U.K. economy. For the voters, the other issues of immigration and political autonomy were more important and that’s what guided the voting majority.
What the Brexit Vote Means to the Financial Industry
Of more significance will be the changes to the financial industry from Brexit. London as a financial hub will undoubtedly see its power shrink as companies relocate staff. Shares of the major London-based banks, other than HSBC which books most of its business in Asia, are down nearly a third since the Brexit vote and haven’t participated as much in the rebound.
You can argue that New York has done just fine as a financial hub without any cross-border partnerships but I’m not sure the same will be said of London when the dust settles. London has been a financial center for centuries but has benefited recently from banking deregulation and global trade. The problem with the Brexit is that it will now make moving employees more difficult. Banking thrives on being able to source the best minds from wherever they may be. As part of the EU, British banks had a huge pool of talent and could move people freely around the region.
JP Morgan has already said it my cut up to 4,000 UK jobs and HSBC may move 1,000 jobs to Paris. With special access to Europe no longer an advantage, there is just less reason to staff huge offices in London.
What affects the financial industry undoubtedly affects the CFA Program designation, most notably in job opportunities. European and Asian candidates may find more opportunities as firms relocate staff to regional offices. On an absolute basis, the financial industry may see more limited growth over the next year as firms retrench until more certainty is found on how the industry will meet the new environment. The designation itself can emerge stronger if the CFA Institute and charterholders take the lead in the evolution of the industry, guiding the collective thinking and decision-making.
Just 4 months to the 2017 CFA Program exams!
Joseph Hogue, CFA